Russia could cut defense procurement spending: sources

MOSCOW (Reuters) - The Russian government is considering a 5 percent cut in defense procurement spending this year, sources say, showing not even Vladimir Putin’s plan to restore Moscow’s military might is immune to the pain of a slowing economy.

Russian servisemen drive T-72 main battle tanks during a parade to mark the 70th anniversary of the end of the World War Two in the Far Eastern city of Yuzhno-Sakhalinsk, Russia, September 2, 2015. REUTERS/Sergei Krasnoukhov

The president has made beefing up the military a national priority, and the fact it is up for discussion is a sign that no area is safe from budget cuts as Russia begins a second year of recession following a fall in oil prices and Western sanctions.

The proposal is backed by the finance ministry and has the support of several other ministries and state institutions, enough for it to be put forward for discussion at a cabinet meeting, four official sources said.

A 5 percent cut in defense procurement spending would save the government no more than 100 billion roubles ($1.29 billion), according to an estimate by one official who spoke to Reuters.

“But this is not about money, it is about a political precedent,” the official said.

If approved, the 5 percent cut would be the biggest in defense spending under Putin, who has been Russia’s dominant leader since 2000. In 2011, while prime minister, he announced plans to revitalize the Russian army and its aging equipment by spending 23 trillion roubles by 2020.

The cut would represent a small but symbolic victory for the finance ministry which has said Russia can no longer afford a multi-billion-dollar revamp of the armed forces and called for a 10 percent spending across ministries.

Defense spending is budgeted at 4 percent of gross domestic product this year, or about a fifth of all government spending, and Russia has military engagements in Syria and Ukraine.

Moscow spent 2 trillion roubles on defense procurement in 2015, Deputy Defense Minister Tatiana Shevtsova said last year. That represented over 60 percent of total budget spending on national defense.


One of the sources, who all spoke to Reuters on condition of anonymity, said there had been talk of proposing a 7 percent cut but there was “mighty opposition” from the defense ministry to that plan and the reduction would probably be 5 percent.

There is no final decision and it is yet to be approved by the prime minister or the president, two senior officials said.

“But we are trying to persuade our bosses that it is impossible for the budget to bear such spending today,” a source in the finance ministry said.

A finance ministry spokeswoman declined to comment. The defense ministry did not immediately reply to a request for comment.

Asked whether Russia was considering cutting military spending, Kremlin spokesman Dmitry Peskov said various options are being considered and a final decision had not been taken.

Budget amendments, which would include the cut in spending on defense orders, are to be submitted in April.

The 2016 budget adopted last October allowed for a rise in military spending even though the economy was in recession, hit by the slump in the price of oil and Western sanctions imposed over Russia’s actions in Ukraine.

Already the world’s third biggest spender on defense, after doubling expenditures in the past decade, Russia has allocated 3.14 trillion roubles to the military this year, up from 3.12 trillion roubles in 2015.

That increase was approved despite finance ministry opposition and followed a battle among government factions over whether Russia should prioritize national defense or fiscal stability.

When Putin announced his defense revamp in 2011, the government expected GDP growth of 6 percent throughout the decade. This year the economy is facing its second year in row of falling GDP, its longest recession in two decades.

Oil, which together with a small basket of other commodities makes up half of state revenues, is now selling at slightly above $30 per barrel, just over half the level the Russian government had expected for this year in late 2015.

Russia has not said how much it is spending on military operations in Syria that began on Sept. 30. But Finance Minister Anton Siluanov said last year there were no plans to provide additional financing in 2016 to cover the cost of the operation.

Additional reporting by Jason Bush, Ludmila Danilova and Alexander Winning; Writing by Christian Lowe; Editing by Timothy Heritage