Research and analysis

Finance and economics annual statistical bulletin: international defence 2021

Published 11 November 2021

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

$1,106bn	Total military expenditure of NATO members.
	An increase of $74 billion since 2019 when adjusted for inflation, of which the USA accounted for nearly $55 billion.
10	NATO countries meeting the guideline to spend 2% of GDP on defence.
	These countries are the USA, Greece, Estonia, the UK, Poland, Latvia, Lithuania, Romania, France and Norway. The UK remains the 2nd largest spender in NATO, after the USA.
2.3%	UK expenditure on defence as a percentage of national GDP in 2020.
	The UK has met NATO’s 2% target every year since its introduction in 2006.
4th	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 5th globally.
$1,960bn	Total worldwide military expenditure in 2020, as estimated by SIPRI.
	The USA was the world’s largest spender, accounting for 40% 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.

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 2020

USA outspends the rest of NATO by more than double for the ninth year running.

Figure 1 shows defence expenditure of NATO members during 2020 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 $20 billion on defence are listed separately and all other NATO countries are grouped together. The USA maintains its position as the largest defence spender in NATO, with expenditure of $785 billion, representing 3.7% of their GDP in 2020. The USA spent more than twice as much on defence in 2020 than the rest of NATO combined, and due to an increase of USA spending of roughly 2% between 2019 and 2020, this gap is the largest it has been since 2013. The UK remains the second highest spender in NATO in 2019, spending $61.9 billion on defence.

Figure 1: NATO countries defence expenditure (current 2020 prices and exchange rate (US$)), 2020^{[footnote 1]}

4. NATO Countries’ Defence Expenditure 2014-2020

Total NATO spending is the largest it has been in the past seven years.

Between 2014 and 2020, total NATO spending has increased by more than $120 billion. Despite steadily decreasing their defence expenditure at the start of this period, the USA increased their spending by more than $16.8 billion in 2020. This brought their total defence expenditure up to a level above $780 billion which has not been seen since 2011. NATO expenditure is heavily influenced by the USA who alone accounted for 71% of the total in 2020. NATO Europe and Canada has shown a continued increase in defence expenditure since 2014, with an increase of 4% between 2019 and 2020. During this period they increased their spending by $11 billion. Germany was the largest contributor to this, spending an additional $4.5 billion in 2020.

Figure 2: NATO defence expenditure 2014-2020 (2020 prices and exchange rate (US$))^{[footnote 2]}

UK, France and Germany are the three largest contributors to spending in NATO Europe and Canada.

The chart below shows how the defence spending of NATO Europe countries changed between 2014 and 2020, in the context of their overall 2020 expenditure. While some European countries showed significant percentage growth, they have generally been the countries with a low level of defence expenditure. To demonstrate this, the UK showed an average increase of 0.8% between 2014 and 2020 which translates to an extra $2.7 billion. Meanwhile, Lithuania’s 43% increase during the same period only represents roughly $1 billion. This is why, despite some significant changes in spending patterns at a national level, the European total only increased slightly over this period.

Figure 3: Average % change in real defence spending of NATO Europe countries, 2014-2020^{[footnote 2]}

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

The UK, USA and Greece are the only countries to have met the NATO target every year for the past seven years.

NATO sets a guideline for its members to spend at least 2% of national GDP on defence annually. In 2020, the UK spent 0.2% more on defence than they did in 2019. They were also one of only ten NATO members to meet this guideline; the other countries being the USA, Greece, Estonia, Poland, Latvia, Lithuania, Romania, France and Norway. Greece are now second on the NATO rankings, showing 2.7% of GDP spent. For the first time since 2014, Romania, France and Norway have all passed the 2% spending threshold. Only one member state spent less than 1% of GDP on defence in 2020; this was Luxembourg. They consistently spend the lowest percentage of GDP on defence, averaging just under 0.5% from 2014 through to 2020.

Figure 4: NATO countries’ defence expenditure as a percentage of GDP (2015 prices), 2020

6. NATO Countries’ Equipment Expenditure

Hungary moves up to second following a national armed forces modernisation plan.

NATO sets a guideline that its members should spend at least 20% of their defence budget on equipment. In 2020, the UK was one of seventeen countries to meet this target, spending 22.2% of its defence expenditure on equipment. Luxembourg topped the equipment expenditure rankings with 52.5%, however this is inflated due to their low total spend. They displaced Bulgaria from the top spot following on from Bulgaria having signed a contract in April 2020 for eight F-16 Block fighter aircraft. Hungary’s proportion of defence expenditure on equipment expenditure increases from 23.8% in 2019 to 34.7% in 2020. This increase takes them from eleventh to second in NATO rankings, and was primarily driven by a national armed forces modernisation plan, which included upgrading to 2ABHU battle tanks. France, Turkey, the UK and the USA are the only countries to have consistently met the 20% target since 2014.

Figure 5: NATO countries’ equipment expenditure as a percentage of defence expenditure 2020

7. SIPRI and IISS Defence Expenditure Rankings

Major defence sources continue to disagree on level of China’s spending.

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, 2020 (US$)

China, whose armed forces remain the largest in the world, has significantly different estimates between the two sources. This is to be expected due to the absence of reliable, openly available figures for Chinese defence expenditure. There was a difference of $2.3 billion in UK spend between IISS and SIPRI, which is a consequential difference, as it affects whether the UK is considered the 4th or 5th largest global spender on defence.

8. Worldwide Military Expenditure 2020

NATO outspends Non-NATO members as gap widens.

SIPRI provides global estimates of defence spending which are displayed as a proportion of total global spending below. Global military expenditure in 2020 was estimated by SIPRI to be $1,960 billion, an increase of $50 billion in nominal terms since 2019. Spending by NATO members made up 56% of all global military expenditure, which has increased from the 54% of proportional spend in 2019.

Figure 7: Global military expenditure based on Market Exchange Rates (MER), 2020

The USA remained the largest spender in 2020, accounting for more than the next ten largest spenders combined and making up 40% of total global military expenditure. The UK moves up to second of the NATO members with an increased spend of $10.5 billion from 2019, with Germany and France beneath them in third and fourth respectively. This year, Saudi Arabia remain in fourth of the Non-NATO members, despite spending approximately $4.4 billion less than in 2019. India and Russia remain in second and third respectively. SIPRI has not published figures for the UAE since 2014, but based on the last recorded figure in 2014 they would have been in the top 20 highest spenders shown above.

9. Focus on NATO Allies 1980-2020

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. 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.

9.1 Percentage of GDP

UK and USA continue to consistently meet NATO’s 2006 spending target of 2% of GDP.

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.

While 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 has been more variable. As a result of military activity in the Middle East, USA expenditure rose sharply to peak at over 5% of GDP in 2009 before then falling rapidly to 3.5% in 2019. USA spending as a percentage of GDP was again on the rise in 2020.

Figure 8: Defence spending as a % of GDP (current prices), 1980-2020

At NATO’s 2006 Riga Summit it was agreed by NATO members that nations would spend at least 2% of GDP on defence expenditure. At the time, the UK, France and the USA were all spending above this threshold. However, since 2010 only the UK and the USA have consistently met this target. France fell below the 2% target in 2009 when French defence expenditure began to exclude spending on its Gendarmerie. France have now met the 2% target for the first time since 2009.

9.2 Spending per Capita

USA spending per person continues to fluctuate amid allies’ stability.

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.

Figure 9: Real Defence spending per capita (constant 2020 prices), 1980-2020

9.3 Military Personnel by Population

Military personnel number relative to population remains constant for last five years despite overall decrease since 1980.

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 .

Figure 9 showed that USA expenditure per person increased substantially between 1999 and 2009. However, the actual number of military personnel per thousand population in Figure 10 shows a decrease over the same period. This would indicate that this additional finance was more likely spent on resources rather than on personnel.

Figure 10: Number of military personnel per thousand population, 1980-2020

As mentioned earlier, France updated its definition of defence expenditure in 2009 to exclude that on the Gendarmerie. The result was a dramatic decrease in French personnel per thousand population that year. Germany saw a similar, though much smaller, decrease after 2010 due to the abolition of conscription. The UK witnessed a fall in the number of military personnel per thousand population in 2014. One year later the UK’s Ministry of Defence launched the Strategic Defence and Security Review (SDSR) 2015 which outlines how the UK intends to continue recruiting and retaining their armed forces personnel.

9.4 Spending per Service Person

Spending per service person rises as allies reduce personnel numbers.

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.

The UK has increased spending per service person by $95,000 between 2012 and 2020. However, this is largely due to a decrease of 35,000 military personnel in the same period. This is a similar explanation for France and Germany’s increase during these years.

Figure 11: Real defence spending per service person, 1980-2020

Expenditure per service person in the USA ceased its considerable rise in 2009 after peaking at $639,000 per person. From 2010 to 2016 its military personnel reduced by 126,000, and over the same period US expenditure fell by a total of $145 billion. The drop in expenditure greatly outweighed the falling personnel numbers causing the decrease shown in Figure 11. Since 2017, the reverse is true whereby military personnel has increased by 2.5% relative to a 14% increase in total defence expenditure.

10. Methodology

10.1 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.

10.2 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.

10.3 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.

10.4 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.

10.5 NATO Expenditure – Constant Prices and Exchange Rates

The estimates presented in Figure 2 are based on constant 2020 prices and, as far as possible, constant 2020 exchange rates.

The deflators used to convert current price totals into 2020 constant figures were inferred from the NATO release using the current price estimates and the constant 2015 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 Lithuania in 2014. This is because Lithuania moved from their national currency to the Euro in 2015, so 2020 exchange rates for their previous currency are not available. Figures in non-Euro local currencies were estimated using the most recently available exchange rate. 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.

11. 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.

12. Further Information

12.1 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.

12.2 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.

12.3 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:

Defence Statistics (Defence Expenditure Analysis)

Telephone: 030 679 84442

Email: [email protected]

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

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. Figures for 2020 are provided as estimates. ↩

2. In 2015, Lithuania joined the Euro and therefore the figures for 2014; which were measured in its national currency, have been converted by Defence Statistics using the inferred Exchange Rate for Lithuania in 2014. The estimates of change in defence spending over this period should therefore be considered indicative. ↩ ↩²