Growing Security Fears Boost Defence Budgets

Estimated reading time: 6 minutes

Propelled by record energy sector revenues, the Middle East was the fastest growing region globally between 2012 and 2014. But, 2015 saw the first defence budget cuts for a decade as oil prices crashed. “We saw the first marginal cuts in 2015, but, those cuts are now expected to deepen in 2016 as states are forced into pursuing fiscal consolidation with more vigour,” Caffrey said.

Nevertheless, heightened regional security concerns are expected to ensure that defence budgets are protected in relative terms. “As the Gulf States take a more active role in regional security, we will likely see upward pressure on defence budgets in the medium to long term,” Caffrey said. As a result defence spending in the region is expected to be largely flat at $170 billion over the next two years with a major downturn seen as unlikely.

The countries with the fastest growing defence budgets in the region in 2015 were Iran, Tunisia and Israel. Saudi Arabia will still spend the most on defence in the Middle East and North Africa region, with $46 billion in 2015.

Western Europe emerges from five years of cuts

Since 2010, Western European spending has contracted by 1.3 percent on average every year. However, 2016 will be the first year of increased defence spending in Western Europe, as major procurement projects come online and as governments boost spending in response to growing security fears.

“2015 appears to be the year when defence turned a corner in Western Europe,” McGerty said. “There was widespread recognition that cuts need to end and the region needs to respond to an increasingly complex security environment.” As a result of changes implemented this year, an extra €50 billion is expected to be spent on defence over the next five years, the IHS report said.

The UK, France and Germany account for more than 60 percent of regional spending in Europe and have held their places in the top 10 of global spenders in 2015. Notably, Norway and Finland will grow the most in 2016, with 10 percent and 6 percent growth rates, respectively.

Russia reaches peak spending

2015 was the year Russian defence spending peaked after a decade of staggering defence budget growth. The country’s core defence budget has trebled since 2007 in nominal terms, reaching 4.3 percent of GDP this year. Russia’s 2015 defence budget was $54 billion, up from $45 billion in 2014.

“Russian defence spending was starting to look unaffordable even before 2015’s economic and fiscal downturn,” Caffrey said. “Cuts are now unavoidable as Moscow tries to keep its budget deficit in check.” Russia’s defence budget is expected to fall in real terms over the next five years; however spending is still projected to be higher in 2020 than what it was in 2014.

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