Research and analysis

Finance and economics annual statistical bulletin: international defence 2017 (revised 15 July 2019)

Updated 18 July 2019

The Finance & Economics Statistical Bulletin series provides figures on the composition and scope of the Department’s expenditure, information on the impact of defence spending on the wider economy, and compares Ministry of Defence (MOD) spending to that of other departments and countries.

International Defence presents comparative information on UK defence spending and that of other countries. This includes the defence expenditure of NATO member states in constant US$ and as a percentage of their GDP and how much of their defence expenditure is spent on equipment. A comparison of two international defence spending data sources, the Stockholm International Peace Research Institute (SIPRI) and the International Institute for Strategic Studies (IISS), is provided, focusing on top spenders. Also detailed are the top 10 military spenders worldwide, ranked using market exchange rates (MER) and purchasing power parity (PPP) rates. Trends for the UK, Germany, France and the USA are given particular focus at the end of the bulletin.

1. Key Points and Trends

$920bn	Total military expenditure of NATO members.
	An increase of $25 billion since 2015 driven primarily by an increase in USA defence spending.
2.2%	UK expenditure on defence as a percentage of national GDP in 2016.
	A 0.1 percentage point increase since 2015.
5	NATO countries meeting the guideline to spend 2% of GDP on defence.
	These countries are the USA, Greece, the UK, Estonia and Poland. The UK remains the 2nd largest spender in NATO, after the USA.
5th	The UK’s position in global defence expenditure rankings, according to IISS.
	SIPRI, who include expenditure on state paramilitary forces in their estimates, rank the UK 7th globally.
$1,686bn	Total worldwide military expenditure in 2016, as estimated by SIPRI.
	The USA was the world’s largest spender, accounting for 36% of the total global spending.

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2. Introduction

This bulletin provides information on defence spending by NATO member states, top military spenders globally, as well as trends in defence spending and strategic posture for the UK, USA, France and Germany. It is produced as part of the transparency and accountability of the Ministry of Defence to Parliament and the public. Detailed statistics and historic time series can be found in the supporting data tables.

Revisions have been made to certain figures because of a data processing error. The errors are considered minor and do not affect the key trends. All revisions will be clearly marked with a revision marker ^r. View the Ministry of Defence Statistics Revisions and Corrections Policy

2.1 Context

The information in this bulletin has a wide range of users including the media, politicians, academic researchers and the general public who use the information to:

• Set the context for other information on Defence;
• Assist in understanding the impact of changes in Defence policy;
• Make comparisons of countries’ defence spending both over time and against other countries;
• Help assess the relative position of the UK’s defence expenditure in terms of other NATO members, and globally.

This bulletin is not an Official Statistics publication

The United Kingdom Statistics Authority can designate statistics as National Statistics, in accordance with the Statistics and Registration Service Act 2007 and signifying compliance with the Code of Practice for Official Statistics.

Designation can be broadly interpreted to mean that the statistics:

• meet identified user needs;
• are well explained and readily accessible;
• are produced according to sound methods; and
• are managed impartially and objectively in the public interest.

However, as the statistics contained within this bulletin have already been published by either NATO, SIPRI or IISS, they are not being published as Official Statistics.

Further information about the limitations of International Defence data can be found in the Methodology section, and the sources of the information contained within the bulletin can be found referenced within the tables and in the footnotes.

3. NATO Countries’ Defence Expenditure 2016

Figure 1 shows defence expenditure of NATO members during 2016 in US$ billion. The USA is shown on the left of the chart, with the rest of NATO shown on the right. Countries that spent more than $10 billion on defence are listed separately and all other NATO countries are grouped together.

It can clearly be seen in Figure 1 that the USA maintains its position as the largest defence spender in NATO, with expenditure of $664 billion, representing 3.6% of their GDP in 2016. The USA spent more than twice as much on defence in 2016 than the rest of NATO combined. The UK was the second highest spender in NATO in 2016, spending $57 billion on defence.

Figure 1: NATO countries defence expenditure (constant 2016 prices and exchange rate (US$)), 2016

4. NATO Countries’ Defence Expenditure 2010-2016

Total NATO defence expenditure fell steadily in real terms each year between 2012 and 2015. However it increased in 2016, from $895 billion to $920 billion, the highest it has been since 2013.

Figure 2: NATO defence expenditure 2010-2016 (2016 prices and exchange rate (US$))^{[footnote 2]}

The chart below shows how the defence spending of the NATO Europe countries changed between 2010 and 2016, in the context of their overall 2016 expenditure. Whilst defence spending by some European countries has changed significantly since 2012, this has generally been the case amongst countries with a low level of defence expenditure. This is why, despite some significant changes in spending patterns at a national level, the European total remained relatively stable; only increasing slightly over this period.

Figure 3: Average % change in real defence spending of NATO countries, 2010-2016^{[footnote 2]}

5. NATO Countries’ Defence Expenditure as a Percentage of GDP

NATO sets a guideline for its members to spend at least 2% of national GDP on defence annually. In 2016 the UK was one of only five NATO members to meet this guideline; the other countries being the USA, Greece, Estonia and Poland.

Four member states spent less than 1% of GDP on defence in 2016; these were Czech Republic, Belgium, Spain and Luxembourg. Luxembourg consistently spends the lowest percentage of GDP on defence, averaging just under 0.4% from 2012 through to 2016.

Overall NATO defence spending as a percentage of GDP dropped from 2.8% in 2012 to 2.4% in 2016. Total NATO Europe expenditure as a percentage of GDP rose slightly from 1.43% in 2015 to 1.45% in 2016. The NATO North America figure also rose slightly from 3.34% in 2015 to 3.37% in 2016.

Figure 4: NATO countries’ defence expenditure as a percentage of GDP (2010 prices), 2016^{[footnote 3]}

6. NATO Countries’ Equipment Expenditure

NATO sets a guideline that its members should spend at least 20% of their defence budget on equipment. In 2016, the UK was one of nine countries to meet this target, spending 21.6% of its defence expenditure on equipment. Interestingly, the country with the largest proportion of their defence expenditure spent on equipment, Luxembourg at 30.1%, also had the smallest spend on defence as a proportion of GDP.

Figure 5: NATO countries’ equipment expenditure as a percentage of defence expenditure 2016^{[footnote 3]}

7. SIPRI and IISS Defence Expenditure Rankings

Comparisons of international defence expenditure are challenging due to the varying definitions of defence expenditure employed by the different organisations which publish estimates.

Some widely used estimates of global defence spending are produced by the Stockholm International Peace Research Institute (SIPRI) and the International Institute for Strategic Studies (IISS). However, estimates and global rankings differ even between these sources, as can be seen in Figure 6.

Figure 6: Estimates of total defence spending, 2016 (US$)

The UK maintains its position as the 5th highest defence spender as defined by IISS, however it has fallen from 5th place to 7th place when ranked by SIPRI this year. Whilst both organisations’ estimates for the top 10 global defence spenders are relatively similar, the estimates for China do differ significantly. In the absence of reliable, openly available figures for Chinese defence expenditure this is not unexpected.

8. Worldwide Military Expenditure 2016

SIPRI provides global estimates of defence spending which are displayed as a proportion of total global spending below. Global military expenditure in 2016 was estimated by SIPRI to be $1,686 billion, an increase of $10 billion in nominal terms since 2015. Spending by NATO members made up 52% of all global military expenditure.

Figure 7: Global military expenditure based on Market Exchange Rates (MER), 2016^{[footnote 4] [footnote 5]}

The top four defence spenders have been the same countries since 2014, however Russia has risen to 3rd place this year, overtaking Saudi Arabia. The USA remains the largest spender in 2016, with their expenditure rising slightly from $596 billion in 2015 to $611 billion, back to a similar level as in 2014. USA expenditure in 2016 was greater than the next eight largest spenders combined, and made up 36 per cent of total global military expenditure. According to SIPRI, the UK has dropped to the 7th largest spender in 2016 from 5th place in 2016. It has been overtaken by both India and France who have risen to 5th and 6th respectively.

The other top 10 global defence spenders, according to SIPRI, are China (2nd), Japan (8th), Germany (9th) and South Korea (10th).

Not included in the top 20 global defence spenders displayed above is the UAE who were the 14th largest defence spender in 2014, so would likely appear in the top 20 again this year if data were available, however considering SIPRI data has not been available for the UAE for two years the decision was taken to chart the top 20 spenders without the UAE included.

9. Currency Conversion and International Comparisons

When converting expenditure into a common currency, there are two commonly used methods. The first is to use market exchange rates (MER), the price at which two currencies can be exchanged on the foreign exchange markets. The second is to use the purchasing power parities (PPP), an index of how much a certain bundle of goods costs in one country relative to another, to carry out the currency conversion. All figures in this bulletin, other than those presented here, have been calculated using MER.

These two methods can result in very different estimates for certain countries. Presented below are the 2016 SIPRI defence expenditure estimates for the top 10 largest spenders by MER (excluding the USA whose estimates are already expressed in US$ and China whose expenditure is large enough to limit the interpretability of the chart), calculated using both MER and PPP.

Figure 8: SIPRI defence expenditure, calculated using both MER and PPP, 2016

Often the large defence spenders in Western Europe have slightly lower estimates of defence spending when PPP is used as the method of conversion, whereas the large spending non-Western countries tend to have higher ones. However, in 2016 all of the countries have higher values when PPP is used rather than MER, although it can be seen in Figure 8 that the larger spending non-Western countries such as India, Saudi Arabia, Russia and China (MER; $215 billion; PPP $409 billion) have significantly higher estimates using PPP than they do under MER. Countries in Western Europe, such as the UK, France and Germany, are much more similar across the two estimates.

PPP is often higher than MER for countries where domestic costs, such as labour, are significantly lower than in more developed countries. However, estimates based on PPP are heavily dependent on the bundle of goods used; for this reason it is important that the bundle is representative of the types of spending being compared. Given that bundles of civilian goods, used to construct most PPP rates, are unlikely to be representative of military purchases, MER are more commonly used to compare international defence expenditure. However, an advantage of using PPP for comparing spending between countries over time is that they tend to be less volatile than MER.

For the reasons laid out above, the figures within this report are based on MER rather than PPP.

10. Focus on NATO Allies (Percentage of GDP)

The following charts present a range of defence comparators for the UK, USA, France and Germany since 1980. These nations have been selected on the basis that they either have similar strategic postures, capabilities or force structures to the UK, or that the relative size of their respective defence budgets are comparable. Definitions of defence expenditure have changed over time and differ between countries; this makes detailed comparisons between countries difficult. Considering this fact, data should only be used as an indication of trends and not as a definitive time series.

Defence spending as a percentage of GDP began decreasing for all four nations in the early to mid-1980s as the Cold War drew to a close. This decrease continued throughout the 1990s after the end of the Cold War, with a brief increase in the UK and USA as a result of the first Gulf War. This decrease ended in the early 2000s because of military activity in Iraq and Afghanistan. Whilst spending as a percentage of GDP has remained relatively stable since 2000 in the UK, Germany and France, USA defence spending as a percentage of GDP rose sharply as a result of military activity in the Middle East, peaking at over 5 per cent of GDP in 2009, before falling rapidly to its current level of 3.6 per cent. In 2016, the UK spent 2.2 per cent of its national GDP on defence, compared to 1.8 per cent for France, and 1.2 per cent for Germany.

Figure 9: Defence spending as a % of GDP (current prices), 1980-2016

From 2009 French defence expenditure excludes the Gendarmerie which is now financed separately by the Ministry of the Interior. This change more accurately reflects the NATO definition for defence expenditure, but has led to lower levels of defence spending, both in total and as a percentage of GDP.

11. Focus on NATO Allies (Spending per Capita)

The chart below shows trends in real defence spending per capita between 1980 and 2016.

Spending per capita was relatively stable throughout the 1980s for each of the countries considered except the USA, whose spending increased during the first half of the decade, and then decreased during the latter. Spending per capita for all countries decreased during the 1990s, except for a brief USA and UK upturn as a result of the first Gulf War.

From 2001 to 2009, the USA significantly increased its defence spending per capita from around $1,459^r to $2,746^r per person based on constant 2016 prices. The UK also saw an increase in per capita spending from $755^r in 2001 to $922^r in 2010. These increases were largely associated with the second Iraq war and the International Security Assistance Force (ISAF) contribution in Afghanistan. In 2016, USA spending per capita increased again after having fallen between 2010 and 2015. USA spending per capita ($2,054^r) remains more than twice that of the UK ($869^r).

Figure 10: Real Defence spending per capita (constant 2016 prices), 1980-2016

French and German military expenditure per capita have remained relatively consistent since 1982 with the exception of one significant fall for each country. German spending per capita dropped sharply in 1991, coinciding with reunification following the end of the Cold War. French spending per capita dropped sharply in 2009 as spending on the Gendarmerie was removed from the military budget.

12. Focus on NATO Allies (Military Personnel by Population)

This chart shows how the number of military personnel per thousand of national population has changed between 1980 and 2016.

All four countries have seen a gradual decrease in the number of military personnel as a proportion of the total population since 1980. For all countries apart from Germany, these numbers were highest in the early 1980s. German estimates peaked in 1990, coinciding with reunification following the end of the Cold War, before undergoing a rapid decrease because of restrictions on the size of Germany’s military, a condition of reunification^{[footnote 8]}.

There are currently around 2.5 military personnel per thousand population in the UK, a figure which has been falling steadily in recent years. In 2016 the USA had the highest number of military personnel per thousand population at 4.0, whilst in France there were 3.2 per thousand population. Germany had the lowest figure, employing 2.1 military personnel per thousand population.

Figure 11: Number of military personnel per thousand population, 1980-2016^{[footnote 9]}

The removal of Gendarmerie expenditure from French military spending also resulted in nondeployable Gendarmes, who had previously been counted in the military personnel figures, being removed from that total. This explains the dramatic decrease in French personnel per thousand population in 2009. Germany saw a similar, but much smaller, decrease after 2010 as a result of the abolition of conscription.

13. Focus on NATO Allies (Spending per Service Person)

This chart shows trends in real defence spending per member of the Armed Forces from 1980 to 2016.

Military expenditure per Service person was relatively consistent from 1980 to 2000 for all four nations (the USA and UK only undergoing very gradual increases). Since 2000 all four countries have increased their spending per Service person. This increase has been relatively gradual in Germany and France; spurred on by the end of conscription in the former and the reclassification of the Gendarmerie in the latter.

For the USA, spending per Service person increased dramatically between 2000 and 2009, from $277^r thousand to its maximum of $595^r thousand, reflecting a substantial increase in military expenditure as a result of the Afghanistan/Iraq conflict. Between 2010 and 2015, USA real defence expenditure decreased at a faster rate than the number of military personnel, leading to a drop in real defence spending per Service person. In 2016, real defence expenditure started to increase, resulting in an increase in real defence spending per service person to $510^r thousand.

Figure 12: Real defence spending per service person, 1980-2016

UK expenditure per Service person has also increased significantly since 2000. In 2016 it was $353^r thousand, the highest it has been since this series began in 1980, with the UK spending more than twice as much on defence per Service person as then. The UK exceeds the expenditure per Service person of the other two European nations, Germany and France, who spent similar amounts to each other in 2016 ($234^r thousand and $212^r thousand per Service person respectively).

14. Methodology

14.1 Data Quality

This short section on methodology sets out some simple processes and methods used in the compilation of some of the tables and charts used in this bulletin. More detailed explanations of the data sources and methodologies used can be found in the related data tables and Background Quality Reports.

14.2 Sources of International Defence Data

International Defence Statistics are available in a variety of publications and on a substantial number of websites. The UK Ministry of Defence has no control over the quality, reliability and coverage of data contained within these sources and does not endorse any specific output.

Data provided in this publication fall outside the scope of National Statistics and Official Statistics and as such, must be regarded as illustrative only.

14.3 Limitations of International Defence Data

Making international comparisons of defence presents a number of widely documented issues relating to the comparability and granularity of the international source data. Making direct comparisons will never be straightforward because:

• Defence expenditure data are merely input measures which give them only limited usefulness as an indicator of military strength, capability or burden.
• Whilst there are standardised definitions of defence spending and accounting conventions used by international organisations, principally the UN and NATO, not all countries record and publish their defence spending in accordance with such definitions and conventions.
• Some countries’ actual defence expenditure may be very different from their budgeted expenditure.
• Differences in national tax regimes and the treatment of pension contributions can lead to significant distortions in expenditure.
• Departments other than defence departments may be deemed to contribute to defence whilst some spending by defence departments can be categorised as supporting other activities.
• The choice of conversion method (e.g. Market Exchange Rates (MER) or Purchasing Power Parity (PPP)) used to convert to a common currency or from current to constant (real terms) prices can result in significantly different rankings of global defence spending (see Figure 8). Using MER for instance tends to undervalue the currency and hence the scale of expenditure of lower income countries. Attempts are often made to circumvent this problem using PPP rates. These use currency conversion rates which equalise the overall price of a bundle of goods and services in each country. However PPP rates can be highly inaccurate because of the difficulty of allowing for differences in quality and devising appropriate and relevant “weighting” of individual goods and services. Civilian based PPPs may also not be representative of defence goods and services.

While these problems are less significant in relation to the comparison of defence spending between NATO members, they are substantial in relation to global comparisons.

14.4 Note on NATO definition

NATO publishes an annual compendium of financial, personnel and economic data for all member countries. The NATO definition of defence expenditure differs from national definitions so the figures quoted may diverge considerably from those presented in national budgets. More information relating to the revised NATO definition can be found on the NATO website.

14.5 NATO Expenditure – Constant Prices and Exchange Rates

The estimates presented in Figure 2 are based on constant 2016 prices and, as far as possible, constant 2016 exchange rates.

The deflators used to convert current price totals into 2016 constant figures were inferred from the NATO release using the current price estimates and the constant 2010 price estimates. Exchange rates are inferred from US$ and local currency totals reported in the NATO press release.

The exchange rates inferred in the above manner are used for all countries except Latvia between 2012 and 2013 and Lithuania between 2012 and 2014. This is because both of these countries moved from their national currencies to the Euro (in 2014 and 2015 respectively), so 2016 exchange rates for their previous currencies are not available. In both cases, figures in non-Euro local currencies were estimated using the most recently available exchange rate. In Latvia’s case this was for 2013 and for all of Lithuania’s estimates before 2015 this was 2014. These rates were inferred in the same manner as set out above for other rates.

The estimates presented in Figure 2 are the sums of the national totals calculated as above.

15. Glossary

Constant Prices (Real Values) are price values expressed in the currency value of a particular period (usually a single year). Typically used when comparing spending across a time series, in order to ensure that any changes are due to actual changes in expenditure, rather than factors such as shifts in currency value/inflation.

Current Prices (Outturn Prices) are the prices of the period when the expenditure actually occurred.

Gendarmerie (National) is one of the two national police forces of France along with the National Police. It is a branch of the French Armed Forces placed under the jurisdiction of the Ministry of the Interior with additional duties to the Ministry of Defence.

Gross Domestic Product (GDP) (at market prices) is the value of goods and services produced within a country’s borders in a year. Economic data are often quoted as a percentage of GDP to give an indication of trends through time and to make international comparisons easier.

Gross Domestic Product Deflator is an implicit price deflator for the Gross Domestic Product and is derived by dividing the estimate of GDP at current prices by the estimate of GDP at constant prices. The GDP Deflator is commonly used as a measure of inflation in the economy for the country to which it refers.

IISS stands for the International Institute for Strategic Studies, which is a global think tank that researches political and military conflict.

Market Exchange Rate (MER) is a currency exchange rate determined largely by market forces. Ministry of Defence (MOD) is the United Kingdom Government Department responsible for implementation of Government defence policy and is the headquarters of the British Armed Forces. The principal objective of the MOD is to defend the United Kingdom and its interests. The MOD also manages day to day running of the armed forces, contingency planning and defence procurement.

NATO stands for North Atlantic Treaty Organisation. An alliance whose purpose is to guarantee the freedom and security of its members through political and military means.

Nominal Terms is a year on year comparison of current prices, not adjusted for the effects of inflation.

Purchasing Power Parity (PPP) is a method of measuring the relative purchasing power of different countries’ currencies over the same types of goods and services. Because goods and services may cost more in one country than in another, PPP allows us to make more accurate comparisons of standards of living across countries. The estimates use price comparisons of comparable items but since not all items can be matched exactly across countries and time, the estimates are not always “robust.”

SIPRI stands for the Stockholm International Peace Research Institute, which is an international institute that researches conflict, armaments, arms control and disarmament.

16. Further Information

16.1 Rounding

Where rounding has been used, totals and sub-totals have been rounded separately and so may not equal the sums of their rounded parts.

16.2 Revisions

Corrections to the published statistics will be made if errors are found, or if figures change as a result of improvements to methodology or changes to definitions. When making corrections, we will follow the Ministry of Defence Statistics Revisions and Corrections Policy. All corrected figures will be identified by the symbol “r”, and an explanation will be given of the reason for and size of the revision. Corrections which would have a significant impact on the utility of the statistics will be corrected as soon as possible, by reissuing the publication. Minor errors will also be corrected, but for convenience these corrections may be timed to coincide with the next annual release of the publication.

16.3 Contact Us

Defence Statistics welcomes feedback on our statistical products. If you have any comments or questions about this publication or about our statistics in general, you can contact us as follows:

16.4 Defence Statistics (Defence Expenditure Analysis)

Telephone: 030 679 84442

Email: DefStrat-Stat-Enquiries-Mailbox@mod.gov.uk

If you require information which is not available within this or other available publications, you may wish to submit a Request for Information under the Freedom of Information Act 2000 to the Ministry of Defence via the following link:

https://www.gov.uk/make-a-freedom-of-information-request/the-freedom-of-information-act

16.5 If you wish to correspond by mail, our postal address is:

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For general MOD enquiries, please call: 020 7218 9000

1. Lithuania and Latvia have joined the Euro, so changed national currency, since 2011. The estimates of change in defence spending over this period should therefore be considered indicative. ↩ ↩²

2. Iceland is a member of the Alliance but has no armed forces. ↩ ↩²

3. The figures on this page have been calculated using SIPRI definitions of defence expenditure and therefore may differ from information based on the NATO or IISS definition. ↩

4. The top 20 global defence spenders are charted individually; all other countries’ expenditure is represented in the ‘other’ groupings. ↩

5. The Treaty on the Final Settlement with Respect to Germany. Relevant section is Article 3, paragraph 2. ↩

6. Historic figures in this chart may differ slightly from those shown in the 2015 chart due to revisions to population figures in the IMF World Economic Outlook Database and updates to NATO military personnel figures. ↩