DEFENCE ECONOMIC TRENDSIN THE ASIA-PACIFIC2010

DEFENC

E INTELLIGENCEORG

ANISATION

DEFENC

E INTELLIGENCEORG

ANISATION

1

CONTENTSPREFACE........................................................................................................................................................... 3

SOUTH EAST ASIA – REGIONAL OVERVIEW ...................................................................................................4

BRUNEI............................................................................................................................................................. 7

BURMA.............................................................................................................................................................9

CAMBODIA ...................................................................................................................................................... 11

EAST TIMOR ....................................................................................................................................................13

INDONESIA......................................................................................................................................................15

LAOS ................................................................................................................................................................17

MALAYSIA ...................................................................................................................................................... 19

PHILIPPINES ....................................................................................................................................................21

SINGAPORE .................................................................................................................................................... 23

THAILAND....................................................................................................................................................... 25

VIETNAM ........................................................................................................................................................ 27

SOUTH PACIFIC–REGIONAL OVERVIEW........................................................................................................28

FIJI ...................................................................................................................................................................31

NEW ZEALAND ............................................................................................................................................... 33

PAPUA NEW GUINEA..................................................................................................................................... 35

TONGA............................................................................................................................................................ 37

NORTH ASIA–REGIONAL OVERVIEW ............................................................................................................38

CHINA ............................................................................................................................................................. 41

JAPAN.............................................................................................................................................................43

NORTH KOREA...............................................................................................................................................45

RUSSIA............................................................................................................................................................47

SOUTH KOREA ...............................................................................................................................................49

TAIWAN...........................................................................................................................................................51

SOUTH ASIA–REGIONAL OVERVIEW............................................................................................................. 52

INDIA .............................................................................................................................................................. 55

PAKISTAN....................................................................................................................................................... 57

AUSTRALIA.....................................................................................................................................................59

CANADA..........................................................................................................................................................60

FRANCE........................................................................................................................................................... 61

UNITED KINGDOM.........................................................................................................................................62

UNITED STATES..............................................................................................................................................63

APPENDIX A: METHODOLOGY ......................................................................................................................64

APPENDIX B: NOTES ON SOURCES ...............................................................................................................66

2

PREF

ACE

INTENTIONALLY BLANK

3

PREFACE

Aim

The Defence Economic Trends analyses significant trends in defence funding in theAsia Pacific region. It draws together official defence budgets and national economicdata to enable comparisons between countries and over time.

Methodology

Underpinning much of the analysis in this publication are a series of defence spendingdeflators that are used to convert nominal official defence budgets into constant 2005terms. While there are some limitations to undertaking expenditure comparisons, ourestimates aim to give readers the best available guide to the overall trend for spendingon regional armed forces in real terms. For an explanation of the model, and notes oncomparing expenditure over time and between countries, please refer to Appendix A.

GDP and defence budgets are provided both in nominal terms and in constant US dollarterms, to enable comparisons to be made over time and between countries.

Abbreviations

bn Billion

EIU Economist Intelligence Unit

GDP Gross Domestic Product

GEC Global Economic Crisis

IMF International Monetary Fund

IISS International Institute for Strategic Studies

m Million

tr Trillion

Online version

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Feedback

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If you have any questions in relation to Defence Economic Trends 2010 please contact usdirectly by phone or fax at:

Defence Intelligence Organisation

Telephone: +61 2 6127 5262

Facsimile: +61 2 6127 5086PREFACE

4

SOUTH

EAST

ASIA–RE

GIO

NALOVE

RVIEW

SOUTH EAST ASIA – REGIONAL OVERVIEW

Regional economy

South East Asia is recovering well fromthe GEC as the export dependentcountries – Malaysia, Singapore andThailand – benefit from the pick up inthe global economy, and as the othercountries in the region that are lessintegrated in the global economycontinue solid economic growth.Singapore has had the strongestrecovery with economic growth of15 per cent in 2010. Improvements intourism, low cost exports and the risingvalue of commodity exports,particularly oil and gas, will driveeconomic growth for many South EastAsian countries.

Defence spending

Defence spending acrossSouth East Asia was affected by theGEC with many countries decreasingdefence expenditure in real terms,particularly Malaysia. Someprocurement projects were delayed,but military modernisation programsaimed at consolidating existingcapabilities, upgrading professionalstandards and addressingcounterterrorism requirements werelargely unaffected. Significant capitalacquisition programs are occurring inmany regional armed forces, such asSingapore, Thailand, Malaysia andVietnam. In some cases, theseprograms are introducing advancedplatforms into the region, rather thanjust replacing obsolescent hardware.

Average GDP growth compared to 2010 growthand South East Asia average

0

2

4

6

8

10

12

14

16

Australia Malaysia Indonesia Singapore Thailand Philippines Vietnam SEA Average

%

average growth rate 2000 09

2010 growth rate

Contribution to South East Asiandefence spending in 2010 (2005 US$)

Other

Indonesia16%

Malaysia15%

Vietnam 11%

Philippines 5%

Thailand17%

Singapore35%

5

SOUTH

EAST

ASIA

–REG

IONALOVERVIEW

South East Asian defence budgets 2000 2010

0

1

2

3

4

5

6

7

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2005

US$

bn

Malaysia Indonesia Singapore Thailand Philippines Vietnam

Proportion of GDP spent on defence

0

1

2

3

4

5

6

7

8

9

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

%

Australia Malaysia Indonesia SingaporeThailand Philippines Vietnam

Proportion of government outlays spent on defence

0

5

10

15

20

25

30

35

40

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

%

Australia Malaysia Indonesia SingaporeThailand Philippines Vietnam

6

BRUNEI

7

BRUNEI

BRUNEI

Economy

Brunei’s economy over the last 10 yearshad annual real economic growth of1.5 per cent. The economy grew by0.5 per cent in 2010, reversing theeconomic decline in 2008 and 2009,according to the IMF. Brunei isdiversifying away from oil and gastowards a non energy based economy,but progress is slow. The economy isprojected to grow by 1 per cent in 2011and to average 1.4 percent growthannually to 2015.

Defence spending

Brunei’s 2010 defence budget wasB$512m, US$376.5m in current terms,and was a 3.9 per cent real decrease onthe 2009 defence budget. Brunei hasreceived all four of the 41 metreIJHTIHAD class patrol boats fromGerman ship manufacturer LurssenWerft. Brunei has also ordered two 80metre offshore patrol class vessels fromthe same company. The second vesselwas launched in September anddelivery is expected in 2011.

Brunei's Defence Budget

240

260

280

300

320

340

360

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

m(200

5)

Country Name BruneiCapital City Bandar Seri

Begawan

Population 422 000Land Size 6 000 sq kmCurrency Brunei DollarFiscal Year 1 April–31 MarchEconomy Market economyIndustries Oil, natural gas and tourism

8

BURM

A

INTENTIONALLY BLANK

9

BURM

A

BURMA

Economy

Over the last 10 years, Burma hasrecorded real annual economic growthof just over 11 per cent, according to theIMF. The Burmese economy increasedfrom 4.9 per cent growth in 2009 to5.3 per cent growth in 2010. Largeprojects in power, petroleum andinfrastructure, funded by investors fromChina, South Korea and Thailand, havebeen approved and are forecast tosupport annual economic growth of5 per cent over the next five years.Other sectors in the domestic economyare expected to remain sluggish due tolack of investment and infrastructure.

Defence spending

Reliable data on Burma’s defencespending is not available. Burma’smilitary acquisitions focus oncapabilities to defend against externalthreats and also to ensure the militaryjunta’s security from internal threats. In2009, Burma signed a contract topurchase and assemble 20 MiG 29fighter aircraft. Burma has also ordered50 K 8 jet trainer aircraft from China.

1.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.18.

Country Name Burma(Myanmar)

Capital City Nay Pyi DawPopulation 61.2 million

Land Size 677 000 sq kmCurrency KyatFiscal Year 1 April–31 MarchEconomy Less developed countryIndustries Timber, gems, oil, natural gas

and rice

10

CAMBO

DIA

11

CAMBO

DIA

Economy

Cambodia has been one ofSouth East Asia’s fastest growingeconomies, averaging about 8 per centannual real growth over the last10 years. The economy grew by around5 per cent in 2010, according to the IMF.The garment sector remains exposed tothe US economy – its main exportmarket. However, the tourism sector ispredicted to attract more visitors in2011–2012 and economic growth isforecast at 6.8 per cent in 2011. Annualgrowth is forecast to average6.6 per cent over the next 5 years.

Defence spending

Cambodia’s 2010 defence budget wasestimated by the International Institutefor Strategic Studies to be 1 15tr Riel,US$274.8m in current terms,representing a 20.1 per cent realincrease on the 2009 defence budget.In September, Cambodia received50 second hand T 55 main battle tanksand 44 used BTR armouredpersonnel carriers from Eastern Europe.

CAMBODIA

Cambodia's Defence Budget

40

80

120

160

200

240

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

m(200

5)

Country Name CambodiaCapital City Phnom PenhPopulation 14.3 millionLand Size 181 035 sq km

Currency RielFiscal Year 1 January–31 DecemberEconomy Less developed country with a

market economyIndustries Gemmining, cement, forestry,

rubber, food, tourism, textiles,apparel and footwear

12

EAST

TIMOR

13

EAST

TIMOR

EAST TIMOR

Economy

East Timor has averaged 5 per centannual real economic growth since2000. But economic growth rates havebeen highly variable, ranging fromabout 21 per cent real growth in timesof rebuilding (2001) to almost 6 per centcontraction during periods of unrest(2006). The GEC had little impact onEast Timor due to its limited connectionto global trade, investment andfinance – in 2009 and 2010 economicgrowth was 11.6 and 7.9 per centrespectively. East Timor’s economy isforecast to grow at an average annualrate of 7.2 per cent from 2011 to 2015.

Defence spending

The 2010 defence budget was US$23.2min current terms and represented a40.9 per cent real decrease on the 2009defence budget. Foreign forces providetraining and equipment assistance tothe East Timor Defence Force. In June2010, East Timor commissioned twoSHANGHAI class patrol boats purchasedfrom China. East Timor is also planningto acquire two navy patrol boats fromSouth Korea and additional boats fromIndonesia.

East Timor's Defence Budget

0

10

20

30

2003 2004 2005 2006 2007 2008 2009 2010

US$

m(200

5)

Country Name East TimorCapital City DiliPopulation 1.2 millionLand Size 14 874 sq km

Currency US dollarFiscal Year 1 January–31 DecemberEconomy Less developed country with a

market economyIndustries Oil, coffee, fishing,

cottage industries, rice andsubsistence farming

14

INDONES

IA

15 

    INDONESIA

 

INDONESIA

Economy  

Over the last 10 years, the Indonesian economy has maintained modest average annual growth of 5.1 per cent. Indonesia has been one of the best performers in South‐East Asia during the GEC, due to a relatively low dependence on exports – in 2010, economic growth was 6 per cent, according to the IMF. Private consumption is predicted to remain the major driver behind economic growth in 2011–2015, rather than external demand. Economic growth is forecast to be 6.2 per cent in 2011 and to average 6.7 per cent annually to 2015. 

 

 

Defence spending 

Indonesia’s 2010 defence budget was IDR40.7 tr, US$4.5bn in current terms, and represented a 14.8 per cent real increase on the 2009 defence budget. In May, Brunei and Indonesia signed an agreement for Brunei to transfer two WASPADA‐class fast attack craft to the Indonesian Navy. In December, Indonesia considered procuring six additional Sukhoi Su‐27 and Su‐30 fighter aircraft and is also considering procuring used F‐16s. The Army took delivery of three  Mil Mi‐35M HIND attack helicopters in September 2010 and 17 BMP‐3F infantry fighting vehicles were delivered to the Indonesian Marines from Russia in November 2010.

 

 Country Name  Indonesia Capital City  Jakarta Population  234.6 million  Land Size  1 905 000 sq km 

Currency  Rupiah   Fiscal Year  1 January–31 December Economy  Less developed country with a 

market economy Industries   Petroleum, natural gas, 

mining, cement, chemical fertilisers, plywood, rubber, tourism, textiles and apparel 

16

LAOS

17

LAOS

LAOS

Economy

Despite a decade of good economicgrowth (recording an average annualgrowth rate of 7 per cent in the lastdecade), living standards in Laos remainamong the region’s lowest and thecountry is heavily dependent onforeign aid. In 2010, Laos enjoyed7.7 per cent economic growth andgrowth for 2011 is forecast at7.5 per cent, according to the IMF. Theoutlook is healthy with key industriessuch as forest plantations, mining andgarment industries, continuing toexpand the Laos economy, which isforecast to grow, on average, at7.6 per cent annually over the next 5years.

Defence spending

Laos’ 2010 defence budget wasestimated to be 134bn Kip, aboutUS$19.4m in current terms,representing a 7.4 per cent real increaseon the 2009 defence budget. The LaoPeople’s Army is equipped with Sovietera weapons, some of which are nolonger serviceable. Laos lacks themeans to independently acquire newequipment and its armed forces arelimited to an internal security capability.The Lao People’s Army has a force of29 000 troops and Lao youth are liablefor 18 months of conscripted service.

Laos' Defence Budget

0

2

4

6

8

10

12

14

16

18

20

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$m

(200

5)

Country Name LaosCapital City VientianePopulation 6.4 millionLand Size 237 000 sq km

Currency KipFiscal Year 1 October–30 SeptemberEconomy Less developed country with a

centrally planned economyIndustries Copper, tin, timber,

hydroelectricity, tourism,apparel, rice and cement

18

MALA

YSIA

19

MALA

YSIA

MALAYSIA

Economy

Over the last 10 years, Malaysia hasexperienced modest average annualeconomic growth of 4.8 per cent. Afterthe Malaysian economy contracted by1.7 per cent in 2009, it achieved6.7 per cent growth in 2010, accordingto the IMF. Private consumption andinvestment will remain the primarydriving forces of economic growth inthe 2011–2015 period. Economic growthis forecast to be 5.3 per cent in 2011 andto average 5.1 per cent annually to 2015.

Defence spending

Malaysia’s 2010 defence budget wasabout MYR11.7bn, US$3.6bn in currentterms, and represented a 17 per centreal decrease on the 2009 defencebudget. The Navy received its secondSCORPENE class attack submarine inJuly 2010. The Malaysian governmenthas signalled its intent to procure threemultipurpose support ships. The Army isplanning to receive 257 8x8 wheeledarmoured personnel carriers from alocal Malaysian company with the firstprototype to be delivered in 2011.Delivery of the Air Force’s 12 EurocopterEC725 helicopters is scheduled to beginin 2012.

Malaysia's Defence Budget

1.5

2.0

2.5

3.0

3.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

bn(200

5)

Country Name MalaysiaCapital City Kuala LumpurPopulation 28.2 million

Land Size 330 000 sq kmCurrency RinggitFiscal Year 1 January–31 DecemberEconomy Less developed country with a market

economyIndustries Rubber, palm oil, electronics, tin,

timber, agriculture and oil

20

PHILIPPINES

21

PHILIPPIN

ES

PHILIPPINES

Economy

Over the last 10 years, the Philippinesaveraged annual real economic growthof 4.6 per cent. After slowing in 2009,to just 1 per cent economic growth, theeconomy grew by 7 per cent in 2010.The EIU forecast that growth inremittances will strengthen theeconomy and personal disposableincome will be supported by a gradualfall in unemployment and increasedcash handouts. The Philippineseconomy is forecast to achieve4.5 per cent growth annually for thenext five years.

Defence spending

The Armed Forces of the Philippines2010 budget was 62.7bn Peso,US$1.4 bn in current terms,representing a 1.8 per cent realdecrease on the 2009 defence budget.In 2010, the Armed Forces of thePhilippines again received 5bn Peso(US$110.8m) as part of a modernisationfund to invest in new capability. ThePhilippines placed an order from Polandfor 7 W 3 Sokol helicopters, but theacquisition was cancelled in December.The Air Force took delivery of the first 4of 18 Alenia Aermacchi SF 260 trainingaircraft. The remaining 14 are scheduledfor delivery in 2011. The Air Force is alsoplanning to receive a second hand C130H Hercules transport aircraft.

Philippines' Defence Budget

0.8

0.9

1.0

1.1

1.2

1.3

1.4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

bn(200

5)

Country Name PhilippinesCapital City ManilaPopulation 94.0 millionLand Size 300 000 sq km

Currency Philippines PesoFiscal Year 1 January–31 DecemberEconomy Less developed country with a market

economyIndustries Textiles, pharmaceuticals, chemicals,

wood products, electronics, petroleumrefining and fishing

22

SINGAPO

RE

23 

    SINGAPO

RE 

SINGAPORE

Economy  

Over the last 10 years, Singapore has averaged real annual economic growth of just over 5 per cent. The export‐dependent economy was vulnerable to the GEC and contracted by 1.3 per cent in 2009 before dramatically growing by 15 per cent in 2010 due to the rapid rebounding of the manufacturing and service sectors. The economy is expected to grow by 4.5 per cent in 2011 and to average 4.2 per cent annually for the next five years. 

 

 

 

 

Defence spending 

Singapore’s 2010 defence budget was S$11.5bn, US$8.4bn in current terms, representing a 1.1 per cent real decrease on the 2009 defence budget. Both of Singapore’s two ARCHER‐class submarines have been launched, with the second scheduled for delivery in 2011. The first five from an order of 24 Boeing F‐15SG fighter aircraft have arrived in Singapore after being used for pilot training in the United States. The remaining aircraft are scheduled to be delivered by 2012. In September 2010, the Air Force received its first C‐130B/H Hercules transport aircraft after being upgraded in country. A further nine C‐130 aircraft are to be upgraded. 

Singapore's Defence Budget

4.5

5.0

5.5

6.0

6.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

bn (2

005) 

 Country Name  Singapore Population  5.1 million  Land Size  1 000 sq km 

Currency  Singapore Dollar     Fiscal Year  1 April–31 March Economy  Newly industrialised country with a 

market economy Industries   Electronics, financial services, 

petroleum refining, rubber, ship repair and biopharmaceuticals 

24

THAILAND

25

THAILA

ND

THAILAND

Economy

Over the last 10 years, Thailand’seconomy has grown at an annualaverage rate of 4 per cent. Theeconomy rebounded from the GEC in2010, despite large protests in Bangkok.In 2010, the economic growth was7.5 per cent according to the IMF –rebounding strongly after contracting2.2 per cent in 2009. Thailand’seconomy will remain dependent on thepace of a wider global recovery due tothe importance of its export sector.Economic growth is forecast to be4 per cent for 2011, and to average4.5 per cent annually to 2015.

Defence spending

Thailand’s 2010 defence budgetdecreased to 151.6bn Baht or US$4.8bnin current terms, and represented a14.4 per cent real decrease on the 2009defence budget. The Army has ordered96 BTR 3E1 armoured personnelcarriers. The first two were delivered inSeptember 2010, and 94 are scheduledfor delivery by 2011. The Air Force isreceiving 12 Saab JAS39 Gripen fighteraircraft, with deliveries of the first batchof six beginning in 2011, along with twoSaab 340 turboprop aircraft. One of theSaab 340s will be fitted with an airborneearly warning system. The Air Force isalso planning to extend the life of 18 ofits F I6A/B 15 fighter aircraft. The Navy isexpecting delivery of a landing platformdock in the second half of 2012.

Thailand's Defence Budget

1.5

2.0

2.5

3.0

3.5

4.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

bn(200

5)

Country Name ThailandCapital City BangkokPopulation 67.7 million

Land Size 513 000 sq kmCurrency BahtFiscal Year 1 October–30 SeptemberEconomy Less developed country with a market

economyIndustries Tourism, apparel, agriculture, cement,

electronics, furniture, plastics and tin

26

VIET

NAM

27

VIETNAM

VIETNAM

Economy

Over the last 10 years, Vietnam had oneof the fastest growing economies inAsia, averaging real annual economicgrowth of 7.3 per cent. In 2010,economic growth – 6.5 per cent,according to the IMF – was spurred byforeign direct investment. The economyis forecast to grow by 6.8 per cent in2011 and to achieve an annual averagerate of 7.2 per cent to 2015. But risks tofuture economic growth include furtherdepreciation of the Dong, high inflation,the trade deficit and high fiscalexpenditure.

Defence spending

Vietnam’s 2010 defence budget wasestimated by the IISS to be 44.4tr Dong,about US$2.3bn in current terms,representing an 18.4 per cent realdecrease on the 2009 defence budget.Vietnam is planning to buy sixKILO class submarines from Russia.Vietnam will also receive twoGEPARD class frigates built in Russia. InSeptember 2010, Vietnam signeddefence cooperation agreements withGermany, Poland and the UK. The dealslargely covered defence science andtechnology areas to bolster defencedevelopment.

Vietnam's Defence Budget

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

bn(200

5)

Country Name VietnamCapital City HanoiPopulation 88.3 millionLand Size 332 000 sq km

Currency DongFiscal Year 1 January–31 DecemberEconomy Less developed country with a centrally

planned economyIndustries Food processing, garments, shoes,

mining, cement, fertiliser, glass, tyres,oil, coal, steel, paper, coffee and rice

28

SOUTH

PACIFIC–RE

GIO

NALOVE

RVIEW SOUTH PACIFIC–REGIONAL OVERVIEW

Regional economy

The South Pacific has many small,narrowly based economies that arereliant on tourism, remittances andcommodity exports, which arerecovering slowly after being subduedduring the GEC. For many countries,large budget deficits are expected toplace government finances at risk, andpolitical challenges have had a negativeimpact on economic growth. Theeconomic environment is expected toimprove in 2011 as the global economyrecovers and rejuvenates key sectors.

Defence spending

Economic growth is the key priority formost governments in the region.Defence spending remains a secondarypriority. The regional averagepercentage of GDP spent on defenceover the last 10 years is equivalent toabout 1.1 per cent per year. For manycountries, the armed forces gainoperational experience by deploying aspart of United Nations led missions oralongside partner countries.

Average GDP growth compared to 2010 growth andSouth Pacific regional average

0

1

2

3

4

5

6

7

8

9

New Zealand Fiji PNG Tonga Regional Average

%

average growth rate 2000 09

2010 growth rate

Figure 2: Contribution to South Pacific defence spendingin 2010 (2005 US$) (excluding NZ)

Tonga 4%

PNG 41%

Fiji 55%

29

SOUTH

PACIFIC

–REG

IONALOVERVIEW

South Pacific defence budgets 2000 2010 (excluding NZ)

0

10

20

30

40

50

60

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2005

US$m

Fiji PNG Tonga

Proportion of GDP spent on defence

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

%

NZ Fiji PNG Tonga

Proportion of government outlays spent on defence

0

1

2

3

4

5

6

7

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

%

NZ Fiji PNG Tonga

30

FIJI

31

FIJI

FIJI

Economy

Over the last 10 years, Fiji’s economyhas experienced poor average annualeconomic growth of less than1 per cent. Fiji’s economy struggledduring the GEC. In 2009, the economycontracted by 2.2 per cent, due to itslargest industries – tourism and sugar –underperforming. Fiji’s economicgrowth was just 0.1 per cent in 2010,according to the IMF. Although thetourism industry is expected to improveas the world economy recovers,economic growth is forecast to remainlow due to poor investor confidence.Economic growth is forecast to be2 per cent in 2011 and to average2.3 per cent annually to 2015, accordingto the IMF.

Defence spending

Fiji’s 2010 defence budget was FJ$108m,US$56.3m in current terms,representing a 1.7 per cent real increaseon the 2009 defence budget. Since theDecember 2006 military coup, someforeign military assistance to Fiji hasbeen withheld. This has limited theprospects for the Republic of FijiMilitary Forces to acquire newequipment from traditional sources.

Fiji's Defence Budget

35

40

45

50

55

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

m(2

005)

Country Name FijiCapital City SuvaPopulation 890 000Land Size 18 333 sq km

Currency Fiji DollarFiscal Year 1 January–31 DecemberEconomy Less developed country with a market

economyIndustries Tourism, sugar, clothing, copra, gold

and silver mining, timber and smallcottage industries

32

NEW

ZEALA

ND

33

NEW

ZEALA

ND

NEW ZEALAND

Economy

Over the last 10 years, New Zealand hasexperienced average annual economicgrowth of 2.5 per cent. The economycontracted by 1.6 per cent in 2009 dueto the GEC but recovered well in 2010with economic growth of 3 per cent,according to the IMF. Strong demandfrom Asia for New Zealand’s exportsand improving private consumption ispredicted to stimulate economicactivity. Economic growth is forecast tobe 3.2 per cent in 2011 and to average2.9 per cent annually to 2015.

Defence spending

The 2010 New Zealand defence budgetwas NZ$3.1bn, US$2.2bn in currentterms, representing a 6.8 per cent realincrease on the 2009 defence budget.In November 2010, New Zealandreleased its DefenceWhite Paper. Thereport outlines plans to reprioritisemilitary funding due to economicpressures. Over the next five years, theNew Zealand Defence Force plans toacquire short range maritime patrolaircraft, a tanker vessel and a littoralwarfare support ship, and to find areplacement for the Beech B200 KingAir training aircraft.

New Zealand's Defence Budget

1.2

1.4

1.6

1.8

2.0

2.2

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

bn(200

5)

Country Name New ZealandCapital City WellingtonPopulation 4.4 millionLand Size 271 000 sq km

Currency New Zealand DollarFiscal Year 1 July–30 JuneEconomy Advanced country with a market

economyIndustries Wood products, textiles, machinery,

transportation equipment, financialservices, tourism and mining

34

PAPU

ANEW

GUIN

EA

35

PAPU

ANEW

GUIN

EA

PAPUA NEW GUINEA

Economy

Over the last 10 years,Papua New Guinea (PNG) has recordedaverage annual economic growth of2.9 per cent. PNG is recovering verystrongly from the GEC, with theeconomy driven by high prices for thecountry’s principal commodityexports – copper, gold and crude oil.Economic growth in 2010 was8 per cent, according to the IMF.Growth is forecast to slow as theeconomy settles from its post GECsurge. Economic growth is forecast tobe 5.5 per cent in 2011, and to average4.7 per cent annually to 2015.

Defence spending

PNG’s 2010 defence budget wasK115.6m, US$42.5m in current terms,representing a 18.6 per cent realdecrease on the 2009 defence budget.The PNG Defence Force (PNGDF) hashalved in size since 2001, with PNGDFregular personnel numbers capped at2000 – at least until 2011, according tothe PNGDF Corporate Plan 2008–2012.Additionally, Department of Defencecivilian personnel will remain capped at166 until 2011.

PNG's Defence Budget

20

25

30

35

40

45

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

m(200

5)

Country Name Papua NewGuinea

Capital City Port MoresbyPopulation 6.5 million

Land Size 462 840 sq kmCurrency KinaFiscal Year 1 January–31 DecemberEconomy Less developed country with a market

economyIndustries Copra crushing, palm oil, timber, crude

oil production, construction, gold,silver and copper mining

36

TONGA

37

TONGA

TONGA

Economy

Over the last 10 years, Tonga’s economygrew at a real annual average rate of1.2 per cent. The GEC is continuing toaffect Tonga through lower touristarrivals and reduced remittances.Economic growth in 2010 was0.6 per cent, according to the IMF.Tonga will depend on remittances and arecovery in tourism, particularly fromAustralia, New Zealand and the UnitedStates, to stimulate economic activity.Economic growth is forecast to be1.7 per cent in 2011, and to average1.8 per cent annually to 2015.

Defence spending

Tonga’s 2010 defence budget wasTOP6.6m, US$3.4m in current terms,representing a 23.2 per cent realdecrease on the 2009 defence budget.The Tonga Defence Services operatethree patrol boats provided underAustralia’s Pacific Patrol Boat Program.In December 2010, Tonga deployedtroops to Afghanistan for the first time.A contingent of 55 Tongan troopsdeployed after conductingpre deployment training with theUnited Kingdom’s Royal Air Force(RAF). Tonga will conduct foursix month rotations in Afghanistan aswell as maintaining its commitments tothe Regional Assistance Mission toSolomon Islands.

Tonga's Defence Budget

1.5

2.0

2.5

3.0

3.5

4.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

m(200

5)

Country Name TongaCapital City Nuku‘alofaPopulation 103 000

Land Size 748 sq kmCurrency Pa‘angaFiscal Year 1 July–30 JuneEconomy Less developed country with a market

economyIndustries Tourism, fish, squash, vanilla

38

NORT

HASIA–RE

GIO

NALOVE

RVIEW NORTH ASIA–REGIONAL OVERVIEW

Regional economy

Throughout 2010, economic activity inNorth Asia continued to rebound fromthe GEC. The speed of the recovery, aswell as its composition, has been quitedifferent across North Asia.Export dependent economies such asJapan generally experienced morepronounced cycles than largereconomies with sizable domesticdemand such as China, according to theIMF. Prospects for a sustained recoverylook positive but risks remain ifrenewed volatility in global financialmarkets undermines consumer andbusiness confidence.

Defence spending

Strong economic growth over the lastdecade has supported growth indefence spending, enabling militarymodernisation and acquisitionprograms among most countries in theregion. The impact of the GEC resultedin many of the countries in the regionconstraining growth in 2010 defencebudgets and delaying someprocurement plans. Despite theseconstraints, military modernisationremains a priority. North Korea isexcluded from the regional comparisoncharts below, due to a lack of reliabledata.

Average GDPGrowth compared to 2010 Growth andNorth Asia Average

0

2

4

6

8

10

12

China Japan South Korea Russia Taiwan NA average

%

average growth rate 2000 09

2010 growth rate

Contribution to North Asian defence spending in 2010 (2005 US$)

China32%

Taiwan6%

Russia17%

South Korea16%Japan

29%

39

NORTH

ASIA

–REG

IONALOVERVIEW

North Asian defence budgets 2000 2010

0

10

20

30

40

50

60

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2005

US$bn

China Japan South Korea Russia Taiwan

Proportion of GDP spent on defence

0

0.5

1

1.5

2

2.5

3

3.5

4

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

%

China Japan South Korea Russia Taiwan

Proportion of government outlays spent on defence

0

5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

%

China Japan South Korea Russia Taiwan

40

CHIN

A

41

CHIN

A

CHINA

Economy

Since 2000, China has experiencedannual average economic growth ofabout 10 per cent. Real GDP growthincreased to 10.3 per cent in 2010, upfrom 9.2 per cent in 2009, according tothe EIU. This strong growth has beenenabled by increasing activity in all partsof the economy, due to loose creditconditions and a government backedstimulus package that boostedinvestment. Economic expansion willslightly slow to 9 per cent in 2011 asstimulus spending ends and policytightening leads to a reduction inproperty investment growth. The2011 2015 average GDP growth rate isforecast to be about 9 per cent.

Defence spending

China’s economic growth continues tosupport a rapidly increasing budget forthe People’s Liberation Army. Thedefence budget has averaged growthof over 10 per cent over the last 10years, and currently stands at 519 bnYuan, US$76.7 bn in current terms, andrepresents a 4.4 per cent real increaseon the 2009 defence budget. But somecommentators put China’s real defencespending at a much higher figure. Highlevels of defence spending aresustaining a comprehensive militarymodernisation program, with capableplatforms being produced domestically,as well as being acquired fromarms exporting countries such asRussia.

China's Defence Budget

10

20

30

40

50

60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

bn(200

5)

Country Name ChinaCapital City BeijingPopulation 1.3 billionLand Size 9 561 000 sq km

Currency YuanFiscal Year 1 January–31 DecemberEconomy Socialist market economyIndustries Iron, steel, petroleum, cement,

chemical fertilisers, automobiles,electronics and telecommunications

42

JAPA

N

43

JAPA

N

JAPAN

Economy

Following average annual economicgrowth of about 0.7 per cent over thepast 10 years, Japan’s economy grew by4 per cent in 2010, and will averageabout 1.4 per cent per year for2011–2015, according to the EIU. Theshrinking labour force and increasinglylimited fiscal flexibility are constraintsto economic growth. Privateconsumption is predicted to slow asfiscal stimulus measures expire, beforepicking up later in 2011 as labour marketconditions gradually improve.

Defence spending

Japan’s 2010 defence budget grew by1.7 per cent. The defence budgetcurrently stands at ¥4.8tr, US$54.6bn incurrent terms, and represents 1 per centof GDP. Japan launched its fourthSORYU class submarine and its first19DD escort destroyer the JS Akizuki inlate 2010. The Ministry of Defencerequested ¥15.7 bn to procure 16 newTK X main battle tanks.

Japan's Defence Budget

30

35

40

45

50

55

60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

bn(2

005)

Country Name JapanCapital City TokyoPopulation 127.4 millionLand Size 378 000 sq km

Currency YenFiscal Year 1 April–31 MarchEconomy Advanced country with market

economyIndustries Automobiles, electronics, machine

tools, steel and non ferrous metals,ships, chemicals and textiles

44

NORT

HKO

REA

INTENTIONALLY BLANK

45 

    NORTH

 KOREA

 

NORTH KOREA 

Economy  

North Korea’s economy has shown some improvement from the free fall of the 1990s, when the country experienced famine conditions. South Korean food aid and Chinese energy supplies have prevented total collapse. GDP growth for 2010 is unknown and North Korea’s economy continues to depend on Chinese aid. 

 

 

Defence spending 

Reliable data on North Korea’s defence spending is not available. Official figures released by Pyongyang point to a defence budget that would be equivalent to about US$500m. This contrasts with South Korean and other estimates of around US$5–6bn. A lack of credible and consistent data makes it difficult to compile tables and graphs of North Korean defence spending. Pyongyang follows a ‘military first’ policy, which ensures priority is given to military expenditure. 

              

 Country Name  North Korea Capital City  Pyongyang Population  24.0 million  Land Size  121 000 sq km 

Currency  North Korean Won    Fiscal Year  1 January–31 December Economy  Less developed country with centrally 

planned economy Industries   Military products, machine building, 

chemicals, mining, metallurgy and apparel 

46

RUSS

IA

47

RUSSIA

RUSSIA

Economy

Following a deep recession, the Russianeconomy has improved, but therecovery remains fragile. In 2009, GDPfell by 7.9 per cent as domestic demandcontracted following plunging oil pricesand an abrupt reversal of capital flows.Russia’s economy grew by 4 per cent in2010, according to the IMF. A boost toconsumption from rising real wages anda gradual resumption of bank lendingwill support average GDP growth of4.2 per cent annually over the next fiveyears. Russia has undertaken anenormous fiscal stimulus – of almost10 per cent of GDP – to help mitigatethe impact of the crisis. It will now haveto reverse this fiscal stimulus.

Defence spending

Russia’s 2010 defence budgetcontracted by 3.4 per cent after realgrowth of 13.3 per cent in 2009. Thedefence budget stands at 1.3tr Rubles,US$41.8bn in current terms. Russia isnegotiating with France for fourMISTRAL class helicopter carriers, andthe first six Mi 28N Night Hunter attackhelicopters entered service in late 2010.The joint Russia India PAK FA fifthgeneration fighter aircraft programcontinued development in 2010.

Russia's Defence Budget

12

16

20

24

28

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$bn

(200

5)

Country Name RussiaCapital City MoscowPopulation 140.4 million

Land Size 17 098 000 sq kmCurrency RubleFiscal Year 1 January–31 DecemberEconomy Industrialised country with an

emerging market economyIndustries Oil and gas, coal, precious metals and

timber

48

SOUTH

KORE

A

49

SOUTH

KOREA

SOUTH KOREA

Economy

After recording an average annualeconomic growth rate of 4.4 per centover the last 10 years, the South Koreaneconomy expanded by 6.1 per cent in2010. South Korea’s economy continuesto perform well, private consumptiongrowth is accelerating, investment isstrong, and exports are picking up. GDPgrowth is expected to be 4.5 per cent in2011, and to average 4.1 per centannually over the next five years,according to the IMF.

Defence spending

South Korea’s 2010 defence budgetcontracted by 1 per cent, following realgrowth of 6.7 per cent in 2009. Thedefence budget currently stands atnearly 30tr Won, US$25.6bn in currentterms. South Korea’s plan to developnext generation fighter aircraft andattack helicopters was formallyapproved in January 2010 by thegovernment’s aerospace industrydevelopment committee. South Koreaintends to review its current forcedisposition following the March 2010sinking of the South Korean Navycorvette Cheonan and the November2010 artillery attack onYeonpyeong Island.

South Korea's Defence Budget

16

18

20

22

24

26

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

bn(200

5)Country Name South KoreaCapital City SeoulPopulation 48.9 million

Land Size 99 000 sq kmCurrency South Korean WonFiscal Year 1 January–31 DecemberEconomy Newly industrialised country with a

market economyIndustries Electronics, automobiles, chemicals,

shipbuilding, steel, textiles and apparel

50

TAIW

AN

51

TAIW

AN

TAIWAN

Economy

Taiwan’s economy was severelyimpacted by the GEC and contracted by1.9 per cent in 2009, according to theIMF. Taiwan’s economy rebounded toaverage growth of 9.3 per cent in 2010and is expected to sustain averageannual growth of about 5 per cent overthe next five years, driven primarily byprivate consumption and exports. ButTaiwan’s economy will remain exposedto risk. The outlook for exports isuncertain, given the risks facing theworld economy.

Defence spending

Taiwan’s 2010 defence budgetcontracted by 6.2 per cent, after a realcontraction of 7.4 per cent in 2009. Thedefence budget currently stands atNT$297.4bn, US$9.4bn in current terms.Planned upgrades and refurbishmentsinclude Patriot anti missile batteries,P 3C anti submarine aircraft, HARPOONBlock II missiles and AdvancedMedium Range Air to Air Missiles. In2010, the Taiwan air force selected theEurocopter EC 225 to meet its mediumlift helicopter requirements – threehelicopters are on order with an optionfor a further 17 platforms if required.

Taiwan's Defence Budget

6

7

8

9

10

11

12

13

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

bn(200

5)

Name TaiwanCapital City TaipeiPopulation 23.3 millionLand Size 36 000 sq kmCurrency New Taiwan DollarFiscal Year 1 January–31

December

Economy Newly industrialised marketeconomy

Industries Electronics, petroleum refining,chemicals, textiles, iron and steel,machinery, cement and foodprocessing

52

SOUTH

ASIA–RE

GIO

NALOVE

RVIEW

SOUTH ASIA–REGIONAL OVERVIEW

Regional economy

Economic prospects for the region arerecovering well from the GEC, althoughcontaining high inflation will remain achallenge. India is forecast to continueits strong economic growth, whereasPakistan is facing a number ofdifficulties, notably reconstruction afterwidespread flooding. Despite highgrowth rates and an increase in incomelevels, poverty and inequality remains apersistent issue in the region.

Defence spending

Key drivers contributing to continuedSouth Asian defence budget growthinclude strong economic growth,political rivalries across the China–Indiaand India–Pakistan borders andsignificant internal security challenges.The regional average percentage ofGDP spent on defence, althoughmoderately declining over the last10 years, is about 3 per cent, andaverage regional defence spending hasgrown about 4 per cent over the sameperiod.

Average GDP growth compared to 2010 growthand South Asia average

0

2

4

6

8

10

12

India Pakistan SAAverage

%average growth rate 2000 09

2010 growth rate

Contribution to South Asian defence spending in 2010 (2005 US$)

Pakistan16%

India84%

53

SOUTH

ASIA

–REG

IONALOVERVIEW

South Asian Defence Budgets 2000 2009

0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

2005

US$bn

India Pakistan

Proportion of GDP spent on defence

1

1.5

2

2.5

3

3.5

4

4.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

%

India Pakistan

Proportion of Government outlays spent on Defence

10

12

14

16

18

20

22

24

26

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

%

India Pakistan

54

INDIA

55

INDIA

INDIA

Economy

Over the last 10 years, India hasexperienced high average annualeconomic growth of nearly 7 per cent.India’s performance during the GEC wasaided by high savings, privateinvestment and government spending.India is recovering well from the GEC,with economic growth in 2010expanding by 9.7 per cent, compared to5.7 per cent growth in 2009, accordingto the IMF. Risks to future growthinclude high inflation and a large budgetdeficit, but India is still forecast toundergo average annual economicgrowth of 8.2 per cent to 2015.

Defence spending

India’s 2010 defence budget stands at1.4734tr Rupees, US$32.2bn in currentterms and represents a 6 per cent realdecrease on the 2009 defence budget.In October 2010, the Indian Ministry ofDefence approved the acquisition offour landing platform docks and fouradditional Boeing P 8I Poseidonsurveillance aircraft. India will alsoacquire ten C 17 Globemaster strategiclift aircraft from the US. In 2011, theNavy will receive from Russia anAKULA class attack submarine on a10 year lease. In March 2010, Indiasigned a deal to buy 29 MiG 29 fighteraircraft from Russia with deliveries tobegin in 2012. India is co developingwith Russia the design of a fifthgeneration fighter aircraft. The Armyhas placed an order for an additional124 indigenously produced Arjun mainbattle tanks.

India's Defence Budget

16

18

20

22

24

26

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

bn(200

5)

Country Name IndiaCapital City New DelhiPopulation 1.2 billionLand Size 3 287 000 sq km

Currency Indian RupeeFiscal Year 1 April–31 MarchEconomy Less developed country with a

market economyIndustries IT services, textiles, chemicals, steel,

transportation equipment, cement,mining, petroleum and machinery

56

PAKIST

AN

57

PAKISTA

N

PAKISTAN

Economy

Over the last 10 years, Pakistan hasrecorded average annual growth ratesof 4.6 per cent, according to the IMF.Pakistan’s economy has faced a numberof recent challenges. In 2008, a balanceof payments crisis was averted due toan IMF rescue package and in 2010widespread flooding displaced millionsof people and caused extensivedamage. Despite these challenges andhigh inflation, economic growth in 2010was still a modest 4.8 per cent andgrowth to 2015 is forecast to average4.7 per cent annually.

Defence spending

Pakistan’s 2010 defence budget is442.2bn Rupees, US$5.2bn in currentterms, and represents a 13.6 per centreal increase on the 2009 defencebudget. Delivery of aircraft fromPakistan’s order of 12 F 16C and 6 F 16Dfighter aircraft began in June 2010. Thefirst indigenously made JF 17 fighteraircraft was released in late 2009 andthe squadron was formally inductedinto the Air Force in February 2010.Deliveries of the Saab 2000 airbornewarning and control aircraft continued,with the second airframe delivered inApril 2010. The delivery of the third offour F 22P frigates to the Pakistan Navyoccurred in September 2010.

Pakistan's Defence Budget

2.5

3.0

3.5

4.0

4.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

US$

bn(200

5)

Country Name PakistanCapital City IslamabadPopulation 166.6 millionLand Size 796 000 sq km

Currency Pakistan RupeeFiscal Year 1 July–30 JuneEconomy Less developed country with a market

economyIndustries Textiles, food processing, beverages,

construction materials, clothing, paperproducts and shrimp

58

OTH

ERCO

UNTR

IES–OVE

RVIEW Average GDPGrowth compared to 2010 Growth andOther Countries Average

0

0.5

1

1.5

2

2.5

3

3.5

Australia Canada US UK France Average

%

average growth rate 2000 09

2010 growth rate

Proportion of GDP spent on defence

0

1

2

3

4

5

6

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

%

Australia Canada US UK France

Proportion of Government outlays spent on Defence

0

5

10

15

20

25

30

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

%

Australia Canada US UK France

59

AUSTRA

LIA

AUSTRALIA

60

CANADA CANADA

61

FRANCE

FRANCE

62

UNITED

KINGDOM UNITED KINGDOM

63

UNITED

STATES

UNITED STATES

64

APP

ENDIX

A–MET

HODOLO

GY

Current methodology

The Defence Economic Trends 2010 is the ninth year that theDefence Intelligence Organisation has used a proxy defence deflator to calculatenominal defence budget figures in constant (real) US Dollars. As in the 2009 edition, thispublication uses 2005 as the base year and compares countries using 2005 US dollars.

Using historical budgetary data and macroeconomic statistics, the deflator is modelledon defence expenditure factors across several key cost components.

Capital Procurement – all military capital equipment budgeted by a given country in thecurrent fiscal year. This also includes investment in research and development programs.

Personnel – expenditure on personnel as defined by the country. For some countries thismay include pensions and superannuation costs; however, others may not include theseitems in their personnel budgets.

Operating costs – the ongoing upkeep costs incurred in running a defence force.

The model developed by the Defence Intelligence Organisation is part of an ongoingprocess of refinement to calculate and compare, on a common basis, defence budgetsacross countries and time periods.

Although new economic forecasts were released during the development of thispublication, not all data can be updated to the latest predictions. For the DefenceEconomic Trends 2010, the information is sourced from the International MonetaryFund’sWorld Economic Outlook, released in October 2010.

Historical methodology

Before the 2003 Defence Economic Trends publication, a broad based implicit GDP pricedeflator was used to deflate nominal currency amounts into constant 1995 local currencyterms. This was then converted to US Dollars using the average market exchange ratefor 1995. However, the implicit GDP price deflator is an index that captures pricebehaviour over time in the entire economy. Hence, any in country differences in relativeprice movements between defence expenditure and the rest of the economy are nottaken into account.

Consequently, any event in the non defence sectors of the economy, such as a sharp risein the price of consumer goods, tends to distort defence spending figures when deflatedinto constant dollars.

One possible solution to this problem is the use of the defence deflator index. This typeof index is tailored to defence consumption only and is free of distortions causedelsewhere in the economy. Unfortunately, defence deflators are rarely published andoften the magnitude and behaviour of price movements in sectors of the economy,which feed into defence expenditure, are not known until many years later.

As economic data has becomemore readily available over the past few years, primarilythrough online publications, the modelling of a proxy defence deflator based onhistorical budgetary data and macroeconomic trends has been made possible. TheDefence Intelligence Organisation has developed, and continues to use, such a model.

APPENDIX A: METHODOLOGY

65

APPEN

DIX

A–METH

ODOLO

GY

Using 2005 as the base year, appropriate price sub deflators are applied to each of thesecost component amounts. The model is able to generate a weighted composite indexbased on the percentage spent on personnel, capital procurement and operatingexpenses in each year. This index is used as the proxy defence deflator and is used todeflate the nominal local currency amount into constant 2005 local currency terms.Using the 2005 market US Dollars to local currency exchange rate, obtained from theIMF’s International Financial Statistics periodical, these deflated amounts are thenconverted into US Dollars.

Limitations of the model

Although the model allows for analysis to be tailored to each country more closely, somecountries have insufficient transparency of data to determine the historical relativeweights of each cost component. For these countries the GDP price deflator is usedinstead.

When comparing defence budgets between countries, there is an inherent problem ofinconsistent treatment. Different countries have different items in the defence budget.For example, some countries include military pensions, while others place this amountinto a different appropriation, such as social security. The lack of a uniform definition ofwhat constitutes a defence budget makes a fair comparison between two countriesdifficult. The model allows some control over what is included, but it is limited by thedegree of data transparency and the consistency of official reporting of some of thecountries examined in this report.

Ongoing refinement

The integrity of this model has been discussed with, and approved by, representatives ofthe Department of Defence, Australian Bureau of Statistics, the Department of theTreasury and the School of Economics and Management at the Australian Defence ForceAcademy.

Some may contend that inconsistencies in the data may impair statistical cogency;however, the approach undertaken represents an improved reflection of trends whencompared to the previous methodology and the degree of error in producingcomparable trends is considered to be small. However, the Defence IntelligenceOrganisation will continually seek to refine this approach as new and more reliable databecomes available (this accounts for changes to some figures from year to year).

Although official exchange rates are used in most cases, where there is a significantdiscrepancy between official and unofficial exchange rates in this version, a judgementhas been made as to which rate better represents the purchasing power of the budgetfor that country.

66

APP

ENDIX

B–NOTE

SONSO

URC

ES Data sources

The table below shows the sources from which the majority of data in this publication isdrawn.

Data Source

Official defence budget(local currency)

Official budget sources from nationalgovernmentsIISS The Military Balance 2010

GDP IMF publications

Government expenditureOfficial budget sources from nationalgovernmentsIMF publications

General financial data

(e.g. exchange rates, deflators)

IMF publications

EIU

Population IMF publications

Other publishers of similar data

Other organisations that publish data similar to that provided in this publication include:

IMF;

IISS; and

Stockholm International Peace Research Institute (SIPRI).

The following notes briefly describe the way these different sources compile their data.

IMF— Government Finance Statistics (GFS) Yearbook

Information for the IMF GFS yearbook is obtained primarily by means of a detailedquestionnaire distributed by the IMF to government correspondents, who are usuallylocated in each country’s respective Ministry of Finance or Central Bank.APPENDIX B: NOTES ON SOURCES

67

APPEN

DIX

B–NOTES

ONSO

URCES

IISS— The Military Balance

The IISS method is to cite official defence budgets and to adjust, where necessary,military expenditure to include all other military related spending. The only exceptionoccurs in the case of NATO countries, where the IISS uses the figures released bygovernments and, for comparison, also cites the NATO defined expenditure. Somecountries include internal and border security force expenditure in their defencebudgets; where separate budgets exist, the IISS generally indicates this in footnotes. IISSfigures may vary from previous years, often because of updates made by thegovernments themselves.

Wherever possible, the IISS uses exchange rates taken from IMF publications, althoughthese may not be applicable to commercial transactions. In some cases, in an effort tomake US Dollar figures more relevant for international comparisons, the IISS uses adifferent set of exchange rates to calculate defence spending, which reflects thedifferences in purchasing power parity terms between the civilian and military sectors.

SIPRI

Where possible, SIPRI includes the following items in its definition of militaryexpenditure:

all current and capital expenditure on the armed forces in the running ofdefence departments and other government agencies engaged in defenceprojects and space activities;

the cost of paramilitary forces, border guards and police (when judged to betrained and equipped for military operations);

military research and development, testing and evaluation costs; and

costs of retirement pensions of defence personnel and civilian employees.

68

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