Military expenditures stabilize during 1999; variations persist in different regions

• Author: Sanjeev Gupta; Luiz de Mello; Randa Sab
• Position: IMF Fiscal Affairs Department
• Pages: 175-176

Page 175

Worldwide military spending fell steadily in the 1990s as a share of world output. The latest IMF World Economic Outlook data for 131 countries show that these expenditures stabilized at approximately 2.1 percent of GDP in 1999 (see table, page 176). Other data sources confirm this trend. According to the International Institute for Strategic Studies (IISS), worldwide military spending leveled off at 2.5 percent of GDP in 1998. Stockholm International Peace Research Institute (SIPRI) data show a slight reduction in worldwide military spending to 2.1 percent of GDP in the same year. An important reason for differences in the estimates of worldwide military spending among different data sources is variations in data coverage.

Military spending patterns

As reported in previous reviews in the IMF Survey (June 7, 1999, page 186, and May 11, 1998, page 149), important variations remain in military spending patterns across regions (see chart, this page). World Economic Outlook data show that military spending increased in 1999 as a share of both GDP and total government outlays in the industrial countries, Africa, and the Baltic countries, Russia, and the other countries of the former Soviet Union. The increase in military spending in Africa is confirmed by both SIPRI and IISS. According to IISS, military spending increased as a share of GDP in Asia and in the Middle East in 1998. Military spending remains the lowest among all regions in the Western Hemisphere, at 1.2 percent of the region’s GDP and 5.4 percent of total government spending.

In IMF-supported programs and policy dialogue with member countries, considerable emphasis is placed on how to reduce unproductive spending (for example, “white elephant” projects, generalized subsidies, transfers to loss-making public enterprises, among others). In a sample of 64 countries that have had IMF-supported programs for more than two years, military outlays stabilized at 1.7 percent of GDP in 1998–99, following a steady decline from over 2.0 percent of GDP in 1995. Defense outlays remain higher in countries with Poverty Reduction and Growth Facility (PRGF) arrangements than in other IMF-program countries, particularly as a share of total government spending. In these countries, military spending is also higher than the world average as a share of GDP. In heavily indebted poor countries...