ESTIMATED SOVIET DEFENSE SPENDING IN RUBLES: RECENT TRENDS AND PROSPECTS

Created: 12/1/1977

OCR scan of the original document, errors are possible

NATIONAL SECURITY INFORMATION UnoulhortzedSubjwt ts Criminal Sonctmnl

SECRET

Estimated Soviet Defense Spending in Rubles: Recent Trends and Prospects

eretgn Aunimml Ctnlet7

Key Judgment*

Total Dofonto Spondlng

Our estimates of the ruble cost of Soviet defense activities during thendicate that:

Soviet spe.idlng for defense, defined to correspond to US budgetary accounts and measured in0 prices, has been growing at an average annua) rateercent,illion ruble0illion rubles

Defined more broadly, as Soviet practice might require, defense spending grewillion rubles0illion rubles

Compoiltlon and Allocation

Ruble estimates provide insight into the resource composition of the Soviet defense effort and the trends in resource allocations among the branches of service. Analysis based on the narrower definition ofwhich the estimates are more detailed andthat:

The shares allocated to investment, operating, and ROT&Efairly constant duringeriod. About half of total spending went for investment, aboutercent for operating expenditures, and aboutercent for RDTaK.

The Soviet Navy and Ground Forces received roughly constant shares of Investment and operating spending during lhe period-Spending for the Strategic Rocket Forces and the Air Forces displayed cyclical behavior, and the Air Defense Forces' share of investment and operating expenditures decreased by about one-fifth.

Economic Impact

The defense effort hasubstantial impact on the Soviet economy:

Duringeriod, defense spending consumed an almost constant share of Soviettoercent oroercent, depending on how defense spending is defined.

Defense production consu.ned about one-third of the final product of machine-building andorking, the branch of Industry that produces investment goods as well as military hardware.

Protpocts

The average annual growth rateercent Implied by these estimates exceeds the average annual rate at which we expect the Soviet economy to grow in the years ahead. Econometric projections are that Soviet GNP will grow atearut that growth will fall offtoercent. Yet, the projected economic slowdown notwithstanding. Soviet spending for defense is likely to continue to grow at roughly itse into, whether orALT II agreement Is concluded.

CONTENTS

Page

Key

Preface

Methodology

Confidence in the Estimates

Estimates of Total Defense Spending

Resource Implications

Prospects

ImpactALT II

Defense Spending by Resource Category

Investment

ii

Spending by the

Strategic Rocket Forces

Air Defense

Air

NaVy

Ground Forces

Command and

Charts

Page

Figurestimated Soviet Expenditures for Defense,2. Percentage Shares of Estimated Soviet Investment and

Operating Expenditures for Military Services

Figurerowth of Estimated Soviet Investment and Operating

Expenditures by Branch of

SECRET

PREFACE

This report presents CIA's estimates of Soviet spending for defense duringeriod. It complements our dollar cost comparison of Soviet and US defense activities1 and expands upon the estimates which the Director of Central Intelligence presented to the Joint Economic Committee of the US Congress In

The estimates are couched in ruble terms to reflect the costs of military equipment and activities in the USSR. Such estimates are done to assist in assessing the Impact of defense on the Soviet economy, resource considerations confronting Soviet defense planners, and the relative priorities assigned to the forces and activities which make up the Soviet defense effort. Constant prices are used so that the estimates reflect only real changes In defense activities, not the effects of Inflation. The use0 prices permits comparison of estimated defense expenditures with other CIA estimates of Soviet economichich also use that price base.

'ottat Centtul US Df/mn AcHrtfwn,ctober

SEQRET

Estimated Soviet Defense Spending in Rubles: Recent Trends and Prospects

In the USSR. Information on defense spendinglosely guarded state secret. Only onesingle-line entry foreach year In the published state budget. This figure Is uninformatlvc. because Its scope is not clearly defined and its size appears to be manipulated to suit Soviet political purposes. (Changes In the annourced defense figure do not appear to reflect the changes we have observed In the level of military activities.)

To provide the Information which the official "defense" entry does not, CIA annually estimates the cost of Soviet defense activities. Our estimates begin with the detailed Identification and listing of the activities and physical components which make up the Soviet defense programiven year.ariety of methods this data base is converted Into two value estimates, one In rubles, the other in dollars. For some components, such as military personnel, the data are costed directly, using available ruble prices and costs and dollar prices and costs. For other components,are made from one valuo base to the other by applying dollar-to-ruble and,uch more limited degree, ruble-to-dollar conversion factors. Where pe*sible, the results of direct costing are checked for reasonableness against Soviet

For two of the main components of defenseand operatingand quantities are estimatedfor each major element. The remainingresearch, development, testing, and evaluationnot lend Itself to this approach. Consequently, the cost of militarys estimated by anotherof Soviet Information onfor science.

Confident* In th* Estimates

Our annual estimates reflect ato acquire more and better data andour methods. The past year's c'fortour confidence In the estimatespresented In this reportarginwhich could be substantial for someconfidence Is highest In the estimates oftotal and the investmentof published Soviet economicIntelligence information relating to theyields results which are consistent withcosting estimates for thot year.the direct costing methodologyactual changes observed In Sovietover time, we are confident thatupward trend In these estimates

Our confidence In the estimates at the lower levels of aggregation varies from category to category. We have high confidence in ourfor major naval ships. These are easily observed and are costed directly In rubles, using Soviet data which have been fou'rd to be reliable. Reasonable confidence can also be assigned to the estimates of spending for missile and aircraft systems and for pcy and allowances of uniformed military personnel. We have less confidence In our cost estimates for the smaller procurement Items such as general purpose vehicles and some ground force weapons. We areonfident of the estimates of military RDTAE costs. These estimates rely on Soviet data which are ill-defined and difficult to analyze.

Estimate* el Total Defense Spending

We do not knowow the Soviets define their defense spending. This report uses two definitions: one corresponding to that used In

Announced Dilinu BXpenditurM

(Currant P'tetil

-

1 72 73 74 76 76

SovtaU mlgtrl OttiriH *ffOt Ertmttalot

SICR.IT

compirtion with US ' '

FIGURE 1

the United Statesroader definitionadditional costs which the Soviets might closrlfy as spending for defense. These additional costs Include expenditures for militaryforeign military assistance, and spacethat are operated by the military in the USSR but by the National Aeronautics and Space Administration In the United State*.

Defined to correspond to US accounts,Soviet spending for defense Increasedillion rubles0illion rubleseasured In0 prices. Defined as the Soviets might view their defense effort, estimated spending Increasedillion rubles0illion rubles

Under the narrower definition, for which the estimates are more detailed and precise, esti-

mated Soviet defense spending Increased at an average annual rateercent for the period. The annual growth rates varied during the period, however, reflecting primarilyin procurement outlays for aircraft and strategic missiles. As In earlieryclical pattern as acquisition of older weapon systems tapered off before that of follow-on systems peaked.

RotOVitOat to n*

Although no single measure adequately describes the economic Impact of the Soviet defense effort, defensehare of GNP often Is used for this purpose. Defense now accounts foroercent of Soviet GNP under the narrower definition of defenseand foroercent of GNP under the broader definition. Because defense spending grew only slightly faster than the economyhole duringeriod, there was little change In the share of CNP taken by defense.

Another indication of the economic impact of defense activities is defense's share of crucial Industrial output. During tho period, defense consumed about one-third of the final product of machine-building and metalworking, the branch of Soviet industry that produces Investment goods as well as military hardware. Defensealso absorbed most of the output ofcircuits.

These measures give evidenceubstantial commitment of resources to defense. But there areumber of noneconomic considerations which Soviet leaders would weigh In deciding on future defense programs. These factors include the leaders' views of foreign military threats, their perception of the relationship betweenpower and the success or failure of Soviet foreign policies, and the strength of theforces which support defense programs,

Hi-fill

The Soviet economy probably will continue to grow at its current rate ofearut we believe that1

SECRET

SE/RET

he average annual growth of GNP willtoercent, and possibly toercent, (The higher projection reflects the likely Impacteclining growth rate in the labor force and continuing Soviet Inability to achieve offsetting growth In productivity. The lower projection reflects. In addition, the Impactrojected decline in oil production unaccompanied by vigorous energy conservation measures.)1

Our projections of Soviet spending for defense intore less certain than our estimates of spending in past years. But the trends revealed by our estimates and the evidence gathered In preparing themeasonable basis for such projections. We believe defense spending Is likely to continue to grow intot about its current4ercent per year. The increasing costs of new military hardware, the weapons development programs currently under way, and continuing capital investment In the defense industries all lead us to thisThe scant return likelyransfer of resources from defense to civilian production and the Soviet perception of the future strategic environment also lead us to believe that Soviet defense spending will continue to grow.

A major factor hi the growth of Soviet defense spending Is the rapidly Increasing costs of new weapon systems. As In the United States, the Increasing complexity of new weapons hasIn escalating development, production, and maintenance costs. Such cost escalation is clearly evident in the new systems entering the forcos In theIn aircraft, ballistic missiles, and naval ships.

rr

ECRET

Given the new weapons development programs now under way, the Increasing cost of new military hardware Is likely toore important determinant of defense spending in. Militaryrograms Include potentially costly systems for all of the Soviet armed services, In the strategic forces, new solid-and Hquld-propellant ICBMs,arge

Sovisl Economic ProbUrrj ond Prorptcti.

follow-on to there being devel are new strategic naval missiles. Air defense programs for Improving surveillance and control and for new fighters and low-altitude surface-lo-alr missiles are being pursued. Sti'I other systems are being developed for the air, grotnd. and naval forces. Not all of these systems under development will be deplo, _d, but several will enter production by the, continuing to shift the weapons acquisition mix toward more expensive systems, Even If procuredlower pace than their predecessors, these systems will drive weapons acquisition and maintenance costs upward.

We also see continued capital constructionIndustrialto weapons development programsapparently designed to enhanceMuch of the capital constructionjs occurring at facilities associated

with the production of land- and sea-basedmissiles and high-performancethose costly systems that have been drivingand maintenance costs upward.

We believe that If the Soviets were to reduce defense spendlng's growthemedy for their economic Ills, they would have to break sharply with current spending trends to achieveresults. Our econometric analysis indicates, for example, that freezing defense Investment at its0 level and reducing military manpowerillion15 would increase the average annual rate of growth In Soviet GNP by about one quarter of onehift from defense to consumer goodsmight seem attractive to some Sovietwould yield limited returns and would be difficult to implement because many defense production resources could not be transferred readily to consumer goods production. Moreover, it would probablyopposition from substantial segments of the civilian economic establishment as well as from the powerful leaders and institutions of thesector.

'Se*6

Soviet perceptions of the future strategicalso Increase the likelihood that the upward trend In defense spending will continue Into. The Soviets are Impressed by the dynamism of Western military programs and are concerned with the Chinese threat. They are particularly unsettled by recent US discussions ol the neutron bomb and by decisions onomber, cruise missile,obile missile. Tbe uncertainty with which they view the future stratetric relationship with the West argues for Soviet prudence In planning future miliiary feces and discourages measures to reverse the upward trend In defense spending.

ImportALT II Agrwment

A strategic arms limitation agreement along the lines currently being discussed probably would not slow the growth In Soviet defense spending significantly. Strategic weaponsand prod"-tlon programs might be stretched out, and missile procurement levels could be somewhat lower than otherwise forecast. But procurement and maintenance ofattack systems subject to limitationaccount for only about one-tenth of annual ruble expenditures for defense, and the Impact of the strategic forces on growth In defensehas been muted in recent years by the increasing importance of expenditures forpurpose aircraft. In addition, because many of the resources devoted to strategic programs are highly specialized, the Soviets would be more likely to reallocate them to weapons programs not limited by the agreement than to civilian uses. Thus the effectsALT II agreement on economic growth and consumer satisfaction would be small and probably do nottrong incentive for an agreement.

Dotons* Spending by Rosoure* Cotogory

A useful way of analyzing Soviet defense spending Is to break lt down Into three principal resourceoperating, and RDT&E. Investment spending reflects the flow of new equipment and facilities Into the mlliUry forces; operating expenditures ate those associ-

4

ated with the day-to-day functioning of the military; andxpenditures give some indication of plans for future forceThe resource analysis that follows Is based on estimates of defense spending defined to correspond to US accounts.

Duringeriod the relative shares of Investment, operating, and RDT&EIn total Soviet spending for defensefairly constant. About half of defense spending went for Investment, aboutercent for operating expenses, and aboutercent for

Defense Investment consists of theof weapons, equipment, and major spare parts and the construction of facilities.orand mmt procurement spending was for the acquisition of weapons. The bulk of weapons acquisition outlays went for large,for aircraft and then for missiles and naval surface ships and submarines-Spending for equipment for tire support ofas radar and general purposelower but grew rapidly andthroughout the period.

Oporotlrig

Operating expenditures can be divided into personnel costs and operation and maintenance expenditures. Personnelpay and allowances, food, personal equipment,andf operating expendituresercent of total spending for defense0peration andthe maintenance of equipment and facilities, purchases of petroleum and lubricants, utilities, transportation, and com-

'Apro*oy|alfO So^jp*^^

ttkll tTi' UtrTpsftlt &ixlXK (OfittMru mm-t

parent of total mfttmUmg, Theaf aeat thw rapedi onehange In deftf-llfem Spendlne; for makx rpareb now claerifled aa anfuvnl rather lhan an operating npenaa. The cringe mafcea oar reporting ciWrtent with U5 Department nlractice and with reported Soviet practice

ai well.

SECRET

consistently lower than personnel costs, but increased more rapidly.

RDTftl

Because the ruble cost estimate fors based on highly aggregated and tenuous data, Its growth and composition cannot be discussed with great confidence or In detail. Nevertheless, the Information on which the estimates are based-published Soviet statistics on science, statements by Soviet authoriMes on the financing of research, and evidence on particularrojects-suggests that militaryctivities receive approximatelyercent of total defenseand that they grew steadily during thc period.

Spending by tht Sendee*

The Soviet armed services are organized into fiveRocket *orees. AirForces, Air Forces, Navy, and Ground Forces. Our costing methodology makes itto estimate the allocation of much of defense spending among these forces. We cannot,estimate how the costs ofr of

Percentooe Shares of Estimated Soviet Investment and Operating Expenditures for Military Services

m

Strategic rock ti Forcut

23*

Air Defame Foreaa Air Porcaa

16*

20*

ai*

20*

Qround FarcM

21%

Navy

Command and Support

6

Calculated on tha bull o' diteai.

ECRET

21*

Growth of Estimated Soviet

Invmtment and Operating Expenditures by

Branch of

Slrateg'. Rochet Forcai

140

in

AlrOBfema Forcti

100

1 72 73 74 75 76

Cakvhted on tha baMata0 nibta*.

aw ii" i*

FIGURE 3

ccrtuin command, rear service, and other support functions -re allocated to the separate forces. The discussion that follows excludesnd assigns the command and support functionseparategain, the analysis is based on the narrower and more detailed definition of spending for defense.

Strategic Rockvt Nrcet

Spending for the Soviet Strategic Rocket Forceshich operate land-based strategicaveragedercent of totaland operating spending during' period. But SRF spending movedyclical fashion.02 lt decreased both absolutely andhare of total outlays,the decreasing procurement of the. andCBM systems. Thereafter, the level and share of spending for the SRF Increasedew missile procurement cycle began with the deployment of thend SS-lb ICBMs.*

Air DaferiM Fortti

The Soviet Air Defense Forces are responsible for defending the USSR against attack by hostile aire rait and ballistic missiles. Spending for this branch of service averaged aboutercent of total Investment and operatingeriod.0owever, It fell both absolul'jly and relatively, and while the ubsolute level of the Air Defense

category should no) bo eontuaad wtlh command, control, and com mimical lor* (hof which an dlrtributed among all the f'*nw In ihtt tnalyil*

now batltvt lUl theenae than oftt lower and Id cyclical fl*-ft-tknt ant k* prooovnead thar reported In ooi Utf pmmmt eeHmatoe. Tho earlierabowed the there of dnira tpaadlng aHotatad to tho SRF growing fromercent0ercentompared wtth tha nmw aethaatoercent0wreeotart of the change In oar eaUaattir!o* to raarrarnotg mom of the ceeb of mtctaar matorlab to commandndenUndWtg of theowttmetlatertala, which are centrally controiWala Directorate of the Ministry of Defenae. Moat of the change renin from tew aatluulea ofadle com Tho chann doe* noterreose In tht tHlmalti of tht number of mtaattee prod wed and deployed It Awe Indicate that theae wiapoea art attaewhat hot ootth/ uhaa tkUuu.tr] teat year.

Forces' spending increased thereafter, their share of total expenditures did not.6 their share was some one-ilfth lower thanhe declineheesulted fromIn the rate of procurement of thendurface-to-air missile systems and of Fiddler and Flagon aircraft. The rise In the absolute level of spending2 was due to Increased procurement of interceptorthe Foxbat and then the Flogger.

Air Fore*.

The Soviet Air Forces include threeRange Aviation, Frontal (Tactical) Aviation, and Military Transport Aviation.for the Air Forces averaged abouter-ent of total investment and operatingduringeriodthose for thein cyclical fashion.0pending for thc Air Forces increased absolutely and relatively. Thereafter it decreasedhare of total forces spending, but its absolute level fluctuated slightly from year to year. Over half of this spending went to Frontal Avladon. The second laigestlittle moreo Military Tiansport Aviation, and Long Range Aviation got theportion.

Navy

Investment and operating expenditures for the Soviet Navyairlyf such spending for the military services during the period. The primary items driving the growth of naval spending were ballistic missile and attack submarines. There wasrend toward the procurement of ships such as the Kiev-class ASW carrier and Kira-dass cruiser which are larger, more capable, and morethan the major surface ships of, but which are produced In smaller numbers. In the later years of the period, spending for navalthe Backfirealso an important factor In the growth of the Navy's spending

Ground Farcai

Unlike Ihe other combat branches, the Ground Forcesarger share of total operating expenditures than of total Investment spending. Personnel costs were especially Important,in absolute terms and consistentlyfor about one-third of total spending for the Ground Forces. (The increase In personnel spending resulted from an Increase In manpower rather than In pays for all the combat branches, however. Investment spending for the Ground Forces was larger than their operating expenditures. During the period, investmentgrew each year. Major procurement items for the Ground Forces were self-propelled artillery, mobile tacticalnd tanks and armored vehicles.

Command and Support

Some costs are not allocatedpecific combat branch because they relate to general support provided by the Ministry of Defense apparatus. Other costs cannot be allocated to the combat branches because of lack of Information, We assign both types ofInclude rear services, salaries of Ministry ofemployees, space operations of amilitary nature, and retirementa category called command and support. During the period, the command and support share of spending for the forces was constant at slightly overercent. Within this category,for personnel and operation andwere about twice as large as those for investment.

The author of this paper Is

( 0]

'.itrategic Hesearch. Comments ana queries are

welcome

SECfRET

Original document.

Comment about this article or add new information about this topic:

CAPTCHA