Russia government mulls five percent cut in defense procurement spending: sources

Reuters News
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Posted: Feb 19, 2016 3:36 AM

By Margarita Papchenkova, Lidia Kelly and Darya Korsunskaya

MOSCOW (Reuters) - Russia's government is considering cutting spending on defense procurement this year by 5 percent, four official sources told Reuters, a move that would extend the budget squeeze to a sector that up to now has been immune from real cuts.

The proposal has support across several ministries and in other state institutions, enough for it to go forward for discussion at a cabinet meeting, the sources said. Until now, the idea has not gained traction beyond the finance ministry.

That it is now about to be put on the agenda of the full government is a sign that, as Russia begins its second year of recession caused by low oil prices and Western sanctions, no area is safe from budget cuts.

Cutting defense spending is symbolically important because President Vladimir Putin has made restoring Russia's military might a priority, a stance reinforced by military engagements in Ukraine and in Syria.

Russia spent 1.65 trillion roubles ($21.60 billion) on defense procurement in 2015, according to defense think tank CAST. That represented about half of total budget spending on national defense, it said.

A 5 percent cut in defense procurement spending is unlikely to bring in significant additional budget revenues. The saving would be not more than 100 billion roubles, according to an estimate from one of the officials who spoke to Reuters.

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

STRONG RESISTANCE TO PROPOSED 7 PERCENT CUT

One of the sources, who all spoke to Reuters on condition of anonymity, said that there had been talk of a 7 percent cut, but there was "mighty opposition" from the defense ministry to that plan and most likely the reduction would 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.

The finance ministry spokeswoman declined to comment. The defense ministry did not immediately reply to Reuters' request for comment.

If approved, this would be the biggest cut in defense spending under Putin, who in 2011 announced an ambitious program to revitalize the Russian army and its ageing equipment by spending 23 trillion roubles in the decade to 2020.

It would also represent a small but symbolic victory for the finance ministry which has often argued that Russia could no longer afford a multi-billion-dollar revamp of the armed forces, and called for a 10 percent spending across ministries.

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

With the economy already in recession last year, bitten by low oil prices and Western sanctions imposed on Moscow for its actions in Ukraine, the government adopted a 2016 budget in October that saw a rise in military spending.

Already the world's third biggest spender on defense, after doubling expenditures in the past decade, Russia has allocated 3.14 trillion roubles ($41 billion) to the military this year, up from 3.12 trillion roubles in 2015.

(additional reporting by Jason Bush and Ludmila Danilova; Writing by Lidia Kelly; Editing by Christian Lowe/Mark Heinrich)