Defense Expenditures

Military expeditures have grown to 12.6% of GDP (2015 planned) from a level of 7.98% of GDP in 2012. At oil prices around $30-35 p/b this year, Saudi Arabia will lose another $55 billion in 2016 addition to $110 billion loss in 2015. Without expenditure cuts, it would exhaust its reserves by the end of the decade. The IMF reported that Saudi cash reserves are in freefall, due in large part to the fall in oil prices”. Saudi Arabia has lost about half of its 2015 fiscal revenues following the price drop from USD 96 in 2014 to USD 53 in 2015, equivalent to USD 110 billion or about 15 percent of GDP. With spending at a high level, a deficit of USD 140 billion is projected in 2015. Since Saudi Arabia generates 90 percent of its income from oil, the slump in global energy prices represents a potential crisis for the regime, both economic and political.

Approximately 35 percent of Saudi government expenditures are set aside for defense and homeland security (Ministry of Defense, Ministry of Interior, National Guard and Royal Guard). Industry experts estimate that Saudi defense and security expenditures exceeded $80 billion in 2015. Saudi Arabia has surpassed India to become the world’s largest importer of defense equipment. The increasing involvement of the Saudi military in regional conflicts is reinforcing demand for defense imports while at the same time shifting priorities to acquiring new equipment to counter unconventional, asymmetric threats from sub-state actors and militias.

Saudi military spending increased to meet the Iranian threat, but it is difficult to say by what amount. According to a 2013 report by the Stockholm International Peace Research Institute (SIPRI), Saudi Arabia’s military spending increased to $67 billion, making the kingdom the world’s fourth largest military spender after the US, China and Russia.

For the year 2011 SIPRI estimated the Saudis were devoting 10.1% of their GDP to military and security spending, which would yield a PPP budget of $69.4 Billion. This would place Saudi Arabia fifth place, behind only the US, China, Russia and India. The Kingdom's total military spending in 2011 was $46.2 billion, by SIPRI's estimate. US arms sales to Saudi Arabia in 2011 included purchase of 84 advanced F-15 fighters, upgrades of 70 of the F-15 fighters in the current fleet, a variety of ammunition, missiles and logistics support, dozens of Apache and Black Hawk helicopters, all contributing to a total Saudi weapons deal from the United States of $33.4 billion. The CIA estimated purchasing power parity GDP at $687.7 billion in 2011, but the most recent military expenditure estimate from CIA was from 2005, at which time it was estmated at 10% of GDP by CIA, but only 8% by SIPRI.

During the 1980s, Saudi Arabia's outlays on national security were among the highest in the world in spite of its relatively small population. In 1989 its expenditures of US$14.7 billion ranked eleventh among countries of the world. Nonetheless, this level of spending reflected a declining trend from a peak of US$24.8 billion reached in 1983. Budgeted defense expenditures maintained this gradual decline between 1988 and 1990. Actual defense expenditures rose dramatically in 1990, however, to almost US$31.9 billion to meet the costs of additional arms and the contributions to United States and British military expenditures necessitated by the Iraqi aggression against Kuwait. The defense budget of US$26.8 billion in 1991 included more than US$13.7 billion in contributions to the United States, French, and British war efforts, but did not include projected heavy additional arms purchases. Saudi Arabia also contributed to the costs of other non-Western members of the coalition forces acing Iraq.

In early 1991, Saudi officials estimated that during the first five months of the gulf crisis the country had earned roughly US$15 billion in windfall oil profits arising from increased production and higher market prices, while assuming an additional US$30 billion in commitments related to the crisis. The latter figure included US$13.6 billion in new arms and equipment, US$2.7 billion in extra mobilization and deployment costs and civil defense, with the remainder consisting of grants and loans to other governments to offset the economic effects of the crisis.

During 1983, when defense spending reached a peak, military expenditures per capita were at an annual level of nearly US$2,500. This amount was more than twice the per capita defense spending in the United States, and was not approached by any other country except Israel, Iraq, and the other oil-exporting states of the Persian Gulf. As a consequence of the reduced rate of defense spending after 1983, military expenditures per capita had declined to US$897 by 1989.

The share of gross national product (GNP) originally earmarked for defense in 1990 was 16.9 percent, materially below the peak of 22 percent reached in 1983 but still about twice as high as the Middle East as a whole. Defense outlays constituted 35.5 percent of central government expenditures in 1989, which was also higher than the Middle East average of 32 percent.

The declining rate of defense spending between 1984 and 1990 resulted largely from reductions in oil revenues that produced a negative growth rate for the entire economy. A secondary factor may have been the completion of several large-scale infrastructure projects. Arms imports, which accounted for 16 percent of the defense budget in 1983, had risen to 25 percent by 1988. The major contracts for weaponry placed with Britain, the United States, and France since 1988, the extraordinary expenses of the Persian Gulf War, and plans for expansion of the armed forces during the 1990s seemed certain to impose pressure on the defense budget for years to come.