Some suggested that the events of September 11, 2001, would spark an increase in military spending through higher outlays on security, and thus reverse the fall in military spending since the mid-1980s. Recent data confirm that this has happened.
According to the IMF’s World Economic Outlook ( WEO); Stockholm International Peace Research Institute (SIPRI); and International Institute for Strategic Studies (IISS), world military spending, as a share of GDP, increased to between 2.4 percent and 2.6 percent in 2002 depending on the data source (see table, at right) from between 2.3 percent and 2.4 percent in 2000 largely because of rising outlays in advanced economies (see top chart, page 376). As a share of government expenditure, worldwide military spending increased to between 6.7 percent and 7.3 percent in 2002 from between 6.5 percent and 7.0 percent in 2000. While the overall increase is small as a share of GDP, it is sizable in absolute terms—approximately $32 billion to $64 billion. This compares with estimates of additional resources required to achieve the Millennium Development Goals ranging between $40 billion and $60 billion annually.
Most of the recent increase in military spending is attributable to major industrial countries, which account for more than 60 percent of world military spending. They increased their military outlays by an average of 0.2-0.3 percentage points of GDP between 2000 and 2002, representing more than 80 percent of the total increase in world military spending in absolute terms. Developing countries and transition economies also increased their military spending somewhat during the two-year period.
Military spending as a share of GDP remained highest in the Middle East where spending increased by 0.2-1.6 percentage points of GDP between 2000 and 2002. Military spending was lowest for developing countries in the Western Hemisphere and for transition economies in Central and Eastern Europe. WEO data indicate that military spending in Africa and Asia remained stable during 2001-02, with the decline in the number of conflicts in Africa contributing to this trend.
IMF program countries hold the line
Military spending in countries with IMF-supported programs stabilized in the latter half of the 1990s and remained at about 2.3 percent of GDP in 2002. Spending in countries pursuing programs supported by the IMF under the Poverty Reduction and Growth Facility (PRGF) was lower than the average for all PRGF-eligible countries by 0.2-0.7 percentage point of GDP in 2001-02. At the same time, the heavily indebted poor countries (HIPCs) that reached the decision point under the enhanced HIPC Initiative spent between 0.2 and 0.5 percentage point of GDP less on military outlays in 2001-02 than the average for all countries with PRGF-supported programs.
Greater transparency of military outlays in the budget, as a result of reform of public expenditure management systems, may have contributed to lower military spending in Africa. Military spending in Africa was between 7.6 percent and 8.6 percent of government expenditure in 2002 compared with between 8.3 percent and 9.1 percent in 2000. A recent study by the Organization for Economic Cooperation and Development (OECD) concluded that the introduction of medium-term expenditure frameworks has helped promote transparency of military budgeting in some African countries.
Regional variations persist
Data: IMF, World Economic Outlook database
More resources for poverty reduction
(change in percent of GDP)1
Citation: 32, 22; 10.5089/9781451925692.023.A007
Data: IMF, World Economic Outlook database and IMF staff reports
1 From pre-Poverty Reduction and Growth Facility (PRGF) year to the latest year.
2 All countries that participate in the Heavily Indebted Poor Countries Initiative have PRGF programs.
Poverty budgets reap the benefits
Countries with PRGF-supported programs increased allocations for poverty-reduction programs while reducing military spending. Based on a sample of 26 countries for which data for both military spending and poverty-reducing spending are available, military spending fell, on average, by 0.3 percent of GDP in 2002 compared with 1999, while poverty-reducing spending increased by 2.3 percent of GDP (see chart, bottom, this page). As a share of government expenditures, military expenditures declined by 1.9 percent and poverty-reducing spending increased by 6.9 percent over the same period, reflecting increased emphasis on pro-poor spending in PRGF-supported program countries. Spending increases in HIPCs benefiting from debt relief were slightly larger than those for PRGF-supported program countries as a whole.
Next issue of the IMF Survey: January 19, 2004
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