Armenia - Military Spending

Armenia's 2015 defense budget is equivalent to only about $500 million. Despite this huge spending disparity, the country has so far been able to largely maintain the military balance with its oil-rich foe. Through bilateral defense agreements with Russia and membership in the Russian-led Collective Security Treaty Organization (CSTO), it has long been receiving Russia weapons at knock-down prices or free of charge. This mostly unpublicized military aid appears to have intensified in recent years.

In particular, Nagorno-Karabakh's Armenian-backed army is known to have formed a new tank brigade (which typically consists of around 100 tanks) and received more heavy artillery in 2012. In late 2013, it announced the provision of another 33 Russian-made tanks to its forces. Russia also reportedly delivered 110 armored vehicles and 50 rocket systems to the Armenian military during that period.

Armenia will soon buy more advanced weaponry at domestic Russian prices with a $200 million low-interest loan that was disbursed by Moscow during the "Electric Yerevan" protests. Around the same time, the Russian government revealed that it is negotiating with the Armenian side on supplying the latter with state-of-the-art Iskander-M missiles that would significantly boost Armenia's ability to strike Azerbaijan's vital oil and gas installations. The Armenian missile arsenal currently includes Soviet-era Scud-B and Tochka-U systems with firing ranges of 300 and 120 kilometers respectively.

The military budget was estimated in 1992 at US$33.8 million. Conscripts generally lacked equipment and advanced training, and some units were segregated by social class. Officer elitism and isolation are also problems, chiefly because the first language of many officers is Russian. Desertion rates in 1992—93 were extremely high. In early 1994, the defense establishment considered formalizing the status of the large number of volunteers in the army by introducing a contract service system.

The Karabakh Self-Defense Army consists mostly of Armenians from Karabakh or elsewhere in Azerbaijan, plus some volunteers from Armenia and mercenaries who formerly were Soviet officers. The Karabakh forces reportedly are well armed with Kalashnikov rifles, armor, and heavy artillery, a high percentage of which was captured from Azerbaijani forces or obtained from Soviet occupation troops. Significant arms and materiel support also came from Armenia, often at the expense of the regular army. By 1994 the Karabakh SelfDefense Army was building an infrastructure of barracks, training centers, and repair depots. Defeats that Armenians inflicted on Azerbaijan in 1993 were attributed by experts largely to the self-defense forces, although regular Armenian forces also were involved.

The war drained Armenia’s economy, and Karabakh politicians and issues seem to dominate in Yerevan’s policy. Lack of investment, increasing military expenses, and population decreases affect the country’s economy. According to Defense Minister Serzh Sarkisyan, Armenia’s defense expenditures ($77.5mil. – 4% of GDP) were increasing at a rate corresponding to the increase of Azerbaijan’s military budget ($114mil. - 2.6% of GDP). Armenia's defense budget was $65 million for 2001; the gross domestic product in 2000 was $1.9 billion.

In the official state budget, national defense, national security and law enforcement spending in 2004 was 74.7 bln dram (USD 150 million), or 23.6 percent of the budget. Spending on the social sector, (health care education and culture) was 111.7 billion AMD (USD 220 million) or 35.5 percent of the budget. There was debate in Parliament this year after the Minister of Defense objected that defense spending was less than spending on education for the first time. The Ministry of Defense also typically benefits from supplemental spending bills throughout the year as well as off-budget expenditures. A published government decree from June 2004, approved by the Prime Minister and the President, has established a joint stock company with the assets of the bankrupt Armenian Airlines and assigned 100 percent of the shares to the Ministry of Defense. The Ministry now owns Armenian Airlines' old assets: 25 old Aeroflot planes, mostly old Tupolev passenger aircraft, and it was not clear if any deal will be made with the airline's creditors. The government used a similar decree on August 18, 2004 to distribute revenues from Zangezour Copper Molybdenum Plant, Armenia's single most profitable asset to the "Motherland Military Patriotic Fund." The Zangezour Copper Molybdenum Plant is one of Armenia's most valuable assets yet to privatized and one of the few state assets to make a profit. The copper mine was offered in a public tender early in 2004 that attracted USD 132 million bids from an American firm and a German firm. The Ministry of Trade had drawn out the sale and made the deal less likely, not least by insisting on selling both bidders 50 percent of the shares rather than awarding the tender to one bidder.

Both these cases illustrate a systematic policy of making off-budget transfers to the Ministry of Defense and foundations that it controls. In addition to avoiding the scrutiny of the National Assembly and international observers over military spending, such a mechanism doubtless facilitates opportunities for graft among high-level officials. The government's assignment of Zangezour,s profits suggests that the sale itself, equal to one-fifth of the official state budget, may also be kept off-budget. Indeed, there had been no discussion of how the GOAM intends to spend the USD 132 million in cash it expects to receive from the deal.

The primary responsibility for auditing the GOAM's military spending lies with the Ministry of Defense's internal auditing mechanism, the Department of Financial Inspection. The Defense Ministry's Department of Financial Inspection conducts internal audits and reports to the Minister of Defense. The framework for the internal auditors is decided annually upon receipt of the Ministry's budget allotment.

Several mechanisms exist for significant off-budget spending for defense purposes, including the transfer of state revenues to foundations and the direct sale of state assets. The Ministry of Defense reportedly uses these assets to provide for the defense of Nagorno-Karabakh. While Armenia claims it does not provide for the defense of the self-proclaimed "Republic of Nagorno-Karabakh," in fact it is common knowledge that it does. Funds for this purpose are not accounted for in public documents and are therefore not subject to independent oversight. Because there is no effective independent oversight of these expenditures, it is widely suspected that senior Ministry of Defense officials take advantage of these off-budget funds for personal use.

Until 2006, the MOD had pushed hard to use FMF funding to outfit all of its ground troops with Harris radios - the continuation of an FY04 FMF purchase of USD 10 million in radios. Over the course of a series of bilateral meetings with the MOD, the Office of Defense Cooperation (ODC) was able not only to expand FY07 FMF purchases to materiel beyond communications equipment, but to convince the Armenians to use the money to outfit the two units that work closely with U.S. and coalition forces in Iraq and Kosovo: the 12th Peacekeeping Battalion and the Humanitarian De-Mining Unit.

The new equipment, which includes uniforms, field equipment and mission-specific equipment for Peacekeeping Battalion platoons, and De-Mining engineer personnel will improve those units' interoperability with U.S., coalition and NATO forces. In obtaining the new equipment, Armenia also will achieve one of the goals listed in its NATO Individual Partnership Action Plan (IPAP): IPAP 2.3.1; "create peacekeeping battalion." The funding also will provide technical training for the Peacekeeping Battalion's staff, and several of its platoons, and will establish a transition course for new recruits.

On November 11, the National Assembly approved the 2006 budget which includes a 22 percent increase in public spending funded by continued economic growth, improved tax collection and international donor support. The 2006 budget calls for AMD 482.2 billion (USD 1.15 billion at the projected exchange rate of AMD 420 to the dollar or USD 1.04 billion at the current exchange rate of AMD 463 to the dollar) in expenditures and AMD 412.4 billion (USD 980 million at the projected AMD 420 to the dollar exchange rate) in revenues with a projected deficit of AMD 69.8 billion (USD 166 million at the project exchange rate of AMD 420 to the dollar). The budget emphasizes social spending and there are large increases in expenditures on education and transportation.

In marked contrast to 2005, there was little debate about the modest increase in official defense spending which is slated to reach AMD 74.1 billion (USD 176 million) in 2006. In previous years this issue had been hotly debated because the Ministry of Defense controls a number of important income generating companies and continues to benefit from significant off-budget revenues. The continuing reliance on off-budget mechanisms to finance military spending keeps the defense portion of the GOAM budget artificially low.

FMF assistance will enable the MOD to increase its peacekeeping and stability platoon contributions to company size units by early 2008. The Armenian MOD is very interested in using FMF and IMET to fully equip the peacekeeping battalion ahead of schedule in 2007, and then to begin to train and equip a second peacekeeping battalion and a brigade staff as a move towards their envisioned peacekeeping brigade. Additional US funding would rapidly enable the MOD to achieve its IPAP goal of turning the peacekeeping battalion into a full brigade, and to increase its peacekeeping and stability platoon contributions to battalions, with an eye toward sending them to Iraq or possibly Afghanistan by 2009. On 01 November 2011, parliament increased Armenia’s 2012 military budget to 150 billion drams (about $400 million) -- the country’s largest annual defense outlay ever. But how the ministry will spend those additional funds is anybody’s guess. Defense spending has long been considered off limits to public scrutiny. Energy-rich Azerbaijan’s military budget stood at a massive $1.76 billion (over 1.38 billion manats) for 2012.

On 19 November 2014 Azeri Finance Minister Samir Sharifov said, “Azerbaijan’s armed forces need better equipment as Armenia continues its occupation policy in defiance of international law” and announced that in 2015 Azerbaijan’s defense budget would increase 27 percent to $4.8 billion, 17.9 per cent of the government’s budget expenditures, exceeding Armenia’s total state budget of $3.2 billion. Azerbaijan’s 2014 military budget was $3.8 billion, up from $3.6 billion in 2013 and $3 billion in 2012. In comparison, Armenia’s 2013 defense budget was $447 million.