Thayer Vietnam's Defence Budget

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Background Briefing:

Vietnam’s Defence Budget

Carlyle A. Thayer

April 23, 2011

Introduction

This Briefing Paper provides background for a discussion of media reporting in 2011

that Vietnam had embarked on a significant increase in defence spending. This

Briefing Paper takes issue with these assertions. It notes, in particular, that firmer

judgments cannot be made until the standard open sources on Vietnam’s defence

spending provide estimates for 2010, a necessary benchmark for determining

current trends.

Reliable figures on Vietnam’s defence budget are difficult to obtain.1 In 2004,

Vietnam released its second Defence White Paper and revealed for the first time

that it officially spent 2.5 percent of its Gross Domestic Product (GDP) on defense.

No further details were released.2

In 2009, in a further step towards transparency, Vietnam’s third Defence White

Paper also set forth for the first time official figures for defence spending for 2005‐

2008 (see Table 1).3 Vietnam did not provide a detailed breakdown how these

figures were calculated. As will be noted below, estimates provided by Western

defence specialists are much higher. It is widely assumed that Vietnam does not

include complete data on weapons and equipment procurements (some of it is by

barter trade), research and development costs, defence industrial investment,

pensions for retired military and defence civilians, paramilitary forces and extra‐

budgetary sources from military‐run enterprises.

1 For a discussion see: Carlyle A. Thayer, Vietnam People’s Army: Development and Modernization,

Armed Forces Lecture Paper Series Paper No. 4 (Bandar Seri Begawan: Sultan Haji Hassanal Bolkiah

Institute of Defence and Strategic Studies, 2009), pp. 9‐10 and 29‐30. Available at Scribd.com. 2 Socialist Republic of Vietnam, Vietnam’s National Defense in the Early Years of the 21

st Century

(Hanoi: Ministry of National Defense, 2004). The World Bank estimated Vietnam’s 2004 GDP at U.S.

$45.4 billion. This would have meant a defence budget of U.S. $1.135 billion. 3 Vietnam’s 2009 Defence White Paper was released publicly despite one assertion to the contrary;

see: Jon Grevatt, ‘Vietnam outlines 2011 strategy,’ Jane’s Defence Weekly , December 30, 2010,

electronic edition.

Thayer ConsultancyABN # 65 648 097 123



2

Vietnam’s Defence Budget

This section begins with a brief review of official figures before turning to a

consideration of estimates by outside sources.

Table 1

Vietnam’s Defence Budget, 2005‐2008

(in billion VND)

2005 2006 2007 2008

Defence Budget 16,278 20,577 28,922 27,024

Gross Domestic

Product (GDP)

839,211 973,791 1,143,442 1,490,000

Share of GDP 1.872%* 2.194%* 2.529% 1.813%

*The share of GDP figures were miscalculated. The figure for 2005 should be 1.939% and the figure

for 2006 should be 2.113%. Chart A in the Appendix shows Vietnam’s defence expenditure in local

currency for the period 2003‐2009.

Source: Socialist Republic of Vietnam, Ministry of National Defence, Vietnam National Defence (Hanoi:

December 2009), p. 38 and Nuoc Cong Hoa Chu Nghia Viet Nam, Bo Quoc Phong, Quoc Phong Viet

Nam (Hanoi: December 2009), p. 38.

According to official Vietnamese figures for the four‐year period 2005‐08 (see Table

1), the defence budget expressed in Vietnamese dông (VND) grew for three

consecutive years before declining slightly in 2008. The defence budget as a share of

GDP also grew during the three‐year period 2005‐07, before declining in 2008 to a

four‐year low. The defence budget as a share of GDP ranged from a high of nearly

2.2% (2007) to a low of 1.8% in 2008. During 2008 the Vietnamese economy was

struck first by high inflation and then by the impact of the global financial crisis.

The section below discusses three measures of Vietnam’s defence spending: (1) the

defence budget as a percentage of Gross Domestic Product; (2) defence spending as

measured in U.S. dollars; and (3) defence spending as a proportion of total

government spending.

There are three public sources for Vietnamese defence spending:

• Australia’s Defence Intelligence Organisation (DIO) Defence Economic Trends in

the Asia‐Pacific

• The International Institute for Strategic Studies (IISS) The Military Balance

• Stockholm International Peace Research Institute (SIPRI), Military Expenditure

Database.4

All three databases are published annually. In addition, the U.S. Central Intelligence

Agency’s The World Factbook provides annual estimates of defence expenditure on a

4 Stockholm International Peace Research Institute, Military Expenditure Database, Vietnam,

http://milexdata.sipri.org/result.php4 .



3

year by year basis and not as a time series. Estimates of Vietnam’s defence budget

may also be found in Jane’s country profile for Vietnam.

Table 2 sets out the DIO’s estimates, while Table 3 sets out the estimates provided

by IISS. SIPRI’s data is included in Chart 1 below.

Table 2


(in billion US dollars)

Year Defence Budget (DB) GDP DB as % of GDP

1999 2.1 34.5 6.0

2000 2.6 36.8 7.2

2001 3.1 39.4 7.9

2002 2.6 42.2 6.2

2003 2.6 45.3 5.8

2004 3.0 48.8 6.1

2005 3.2 52.9 6.0

2006 3.2 57.3 5.6

2007 3.7 62.1 5.2

2008 2.1 66.0 3.2

2009 2.1 69.0 3.0

Source: [Australia] Defence Intelligence Organisation, Defence Economic Trends in the Asia‐Pacific

(Canberra: 2009), p. 27.



4

Table 3



Year Defence Budget (DB) GDP DB as % of GDP

2003 2.9 39.5 7.341

2004 2.78 45.3 6.136

2005 3.15 52.2 6.034

2006 3.43 61.1 5.613

2007 3.70 70 5.285

2008 n.a. 82 n.a.

Source: The International Institute for Strategic Studies, The Military Balance (London), 2005‐2006,

2006, 2007, 2008 and 2009 editions. No data on defence budgets was published prior to 2003.

Chart 1



Legend: DIO = Australia’s Defence Intelligence Organisation

IISS = International Institute for Strategic Studies

SIPRI = Stockholm International Peace Research Institute

Chart 1 above provides a comparison of defence expenditures converted into U.S.

dollars by the DIO, IISS and SIPRI. Although there are differences from year to year

between the DIO and IISS, the general trend line is the same. Defence expenditures

in U.S. dollar terms rose from 2003 to 2007. SIPRI figures are based on Vietnamese



5

official sources. Chart 2 below provides comparative data on Vietnam’s defence

budget as a percentage of Gross Domestic Product. Except for the year 2003, DIO

and IISS figures are nearly identical despite the fact that each is based on different

estimates for GDP (see Chart 5). The trend between 2003 and 2007 is clearly

downward. What is noticeable is that the DIO and IISS estimates are greater than the

figures provided by SIPRI. For the period 2004 and after, DIO and IISS estimates

range between 5 and 6 percent while SIPRI’s figures range from 2 to 2.5 percent of

GDP. In other words, DIO/IISS estimates are between two and three times greater

than SIPRI’s. Also, both SIPRI’s and official Vietnamese figures (Appendix, Chart A)

reveal an upward trend in the defence budget expressed as a percentage of GDP

between 2005‐07.

Chart 2

Vietnam’s Defence Budget as Percent of GDP, 2003‐07

Sources: see Chart 1. Vietnam = Vietnam Defence White Paper 2009. The SIPRI data matches the

Vietnam data for 2005‐2007.

So far this section has examined Vietnam’s defence budget using two measures:

defence expenditure expressed in U.S. dollars and the defence budget as a percent

of Gross Domestic Product. Chart 3 below compares real growth in defence spending

with real growth in GDP. These figures indicate that in the decade from 1999‐2009,

Vietnam experienced greater real growth in defence spending than real growth in

GDP only four times: the three years between 1999 and 2001 and 2004. Vietnam

experienced a net decline in real defence spending in 2002 and 2008. In all the other

years, real defence spending increased but at a lesser rate than real GDP growth.

Chart 4 below provides a third measure of Vietnam’s defence expenditure, defence

spending as a proportion of total government spending for the decade 1999 to 2009.

Defence spending as a percentage of total government spending rose for three years

(1999‐01) before peaking at about 32.5% in 2001. Thereafter defence spending as a

proportion of total government spending declined steadily reaching a low of ten

percent in 2008 and 2009.



6

Chart 3

Vietnam: Growth in Defence Spending Compared with Growth in GDP, 1999‐2009

Source: [Australia] Defence Intelligence Organisation, Defence Economic Trends in the Asia‐Pacific,

(Canberra: 2009), p. 26.

Chart 4

Vietnam: Government Spending on Defence


(Canberra: 2009), p. 26.



7

Varying Estimates for 2009

Estimates for Vietnam’s recent defence budgets (2009‐2011) vary widely among

defence industry sources and defence analysts. Their estimates range from U.S. $1.5

billion to U.S. $4 billion.

Jon Grevatt, Jane’s Asia‐Pacific Industry Reporter, wrote: ‘According to the

defence White Paper published in 2009, the country’s defence budget is

about USD1.5 billion, although it is expected that the actual figure will be

closer to USD3 billion.’5 Vietnam’s 2009 Defence White Paper does not

provide figures in U.S. dollars, presumably Grevatt’s estimate was based on a

conversion of the Vietnamese currency figures (VND or Vietnam dông).

In December 2009 the Vietnamese Government was reported to have

decided to peg the defence budget to 1.8 percent of GDP. In 2009, the World

Bank estimated Vietnam’s GDP at U.S. $97.2 billion (see Chart 5). A defence

budget of 1.8 percent equates to U.S. $1.75 billion.

Australia’s Defence Intelligence Organisation estimated that Vietnam’s

defence budget for 2009 was U.S. $2.1 billion (see Table 2 and Chart 6

below).

Richard Weitz, a Washington‐based defence analyst, claimed that Vietnam’s

defence budget for 2009 was U.S. $4 billion.6 Weitz also stated that

Vietnam’s 2009 defence budget was 2 percent of GDP. This is clearly a

miscalculation. Weitz noted that Vietnam’s GDP for 2009 was U.S. $92.4

billion. A defence budget of U.S. $4 billion is 4.3 percent of GDP.

Chart 5

Vietnam’s Gross Domestic Product, 1999‐09


Source: DIO Table 2; IISS Table 3; and World Bank, World Development Indicators

5 Jon Grevatt, ‘Vietnam prioritises defence modernization,” Jane’s Defence Industry , January 12, 2011,

electronic edition. 6 Richard Weitz, ‘Balancing China Through Vietnam,’ Second Line of Defense, January 13, 2011.



8

Controversy Over 2011 Defence Budget

In January 2011, Vietnam’s Defence Minister General Phung Quang Thanh gave an

interview in which he was reported as stating that Vietnam had budgeted VND52

trillion (or U.S. $2.66 billion) for national defence in 2011, an amount equal to 2.54

percent of GDP.7

The 2.54 percent figure is lower than the average of 5.6 percent of GDP over the past eleven years, and reflects a steady decline in defence expenditures as a percentage

of GDP since 2004 (see Tables 2 and 3).

Based on General Thanh’s remarks, Jon Grevatt calculated that Vietnam’s defence

budget had increased by 70 percent over 2010.8 An increase of 70 percent is possible

only if the 2010 defence budget was U.S. $1.86 billion. As noted above, there are no

reliable open sources for 2010 currently available.

It is assumed among the analytical community that Vietnam’s official defence budget

for 2010 was of the order of U.S. $2.1 billion.9 Thus a defence budget of U.S. $2.66

would represent an increase of 26.7 percent. This would mark an upward trend since

2008‐09 when the defence budget fell drastically (see Chart 6 below) and the start of

return to pre‐global financial crisis levels.

Chart 6




(Canberra: 2009), p. 27.

7 ‘Vietnam to Spend $2.66B on Defence Activities in 2011,’ Dantri.com, January 13, 2011 , online

edition. Deutsche Press Agentur, ‘Vietnam to spend 2.6 billion dollars on military in 2011,’ January 13,

2011 misreported the figure for percentage of GDP, giving 1.8 percent rather than 2.54 percent. 8 Jon Grevatt, ‘Vietnam’s military spending to rise by 70% in 2011,’ Janes’ Defence Weekly, January 17,

2011, electronic edition. Grevatt’s analysis was based on remarks by Defence Minister General Phung

Quang Thanh to the 11th

national congress of the Vietnam Communist Party in January 2011. 9 A seventy percent increase on this figure equates to a defence budget of U.S. $3.57 billion.



9

Chart 7

Vietnam’s GDP Estimates Out to 2011


Source: Chart 4; and CIA, The World Factbook

Vietnam’s Future Defence Priorities

The recent eleventh national congress of the Vietnam Communist Party declared

that the modernisation of Vietnam’s armed forces and defence industry is one of five

key tasks to be accomplished in the next five years (2011‐15). This key task is

included under the larger strategic objective of transforming Vietnam into a modern

and industrial country by 2020.

According to Defence Minister General Phung Quang Thanh, priority would be

assigned to modernising the navy, air force, air defence, and electronic and technical

reconnaissance. Lt. Gen. Ngo Xuan Lich, a delegate to the Vietnam Communist

Party’s eleventh national congress, specifically mentioned ‘armaments, ammunition

and technical means’ in his address to the party congress.10

10 ‘Xay dung Quan doi nhan dan Viet Nam cach mang, chinh quy, tinh nhue.’ Quan Doi Nhan Dan,

January 14, 2011. Lt. Gen. Lich was subsequently promoted Director of the General Political

Department.



10

Table 4

Vietnam Arms Purchases as a Percentage of Defence Budget, 2003‐2009


Year Defence Budget

(DB)

Arms Imports (AI) AI/DB

%

2003 1.369 .028 2.0%

2004 1.402 .294 20.0%

2005 1.462 .328 22.4%

2006 1.721 .044 2.6%

2007 2.219 .002 .1%

2008 2.186 .166 7.6%

2009 2.401 .066 2.7%

Total 12.76 .928 57.4%

Average 1.82 .133 8.2%

Source: Stockholm International Peace Research Institute, Arms Transfers Database.

How much does Vietnam spend on arms procurements? Defence industry analyst

Jon Grevatt estimates that between one‐fifth to one‐quarter of Vietnam’s defence

budget for 2009 (U.S. $3.5 billion) was set aside for arms procurement, or U.S. $700‐

$875 million respectively.11 Based on General Phung Quang Thanh’s defence budget

figure of U.S. $2.66 billion in 2011, if one‐fifth to one‐quarter of the defence budget

were set aside for arms procurements, this would amount to between U.S. $532

million and U.S. $665 million, respectively.

According to data from SIPRI’s Arms Transfers Database, for the sixteen year period

from 1995‐2010, Vietnam imported arms valued at U.S. $2.655 billion or an average

expenditure of U.S. $166 million per year. For the eight year period from 2003‐10,

Vietnam imported arms valued at US $1.443 billion. Average expenditure on arms

decreased slightly to U.S. $144 million per year. Arms purchases as a percentage of

the defence budget during the period 2003‐09 averaged 8.2 percent a year (Table 4).

The SIPRI data may underestimate the amount spent by Vietnam on arms

procurements because it relies on official budget figures in the local currency, the

11 Jon Grevatt, “Vietnam begins talks on Indonesian equipment purchases,” Jane’s Defence Industry,

June 4, 2009, online edition.



11

dông. As noted above (Chart 1), estimates by defence analysts are generally twice as

much as the official estimates on which SIPRI relies.

Chart 8

Vietnam Arms Imports, 1995‐2010

(in million US dollars)

Source: SIPRI Arms Transfers Database.

The CIA estimates that Vietnam’s GDP will reach U.S. $102 billion in 2011 (see Chart

7 above). If 2.54 percent of GDP were allocated for the defence budget, the defence

budget would amount to U.S. $2.59 billion. If 20% to 25% of the defence budget was

allocated to arms procurements, this would amount to U.S. $518‐$646 billion.

The

Regional

Context

Vietnam’s defence budget should be placed in comparative regional context.

Chart 9

Southeast Asia: Defence Budgets as a Percentage of GDP



12

Source: U.S. Central Intelligence Agency, The World Fact Book . Most estimates are based on data for

2005‐06. No data was available for Timor‐Leste.

Of the ten members of the Association of Southeast Asian Nations, Vietnam ranks

fifth in terms of the percentage of GDP devoted to defence expenditures. If China is

added to this list, Vietnam would rank sixth based on estimates provided by the U.S.

Central Intelligence Agency (see Chart 8).

Vietnam’s defence expenditure amounts to eleven percent of the total amount of

Southeast Asian defence expenditures in 2009 (see Chart 9). Vietnam ranks after

Indonesia (13%) and before the Philippines (5%).

Chart 9

Defence Spending in Southeast Asia by Country 2009


(Canberra: 2009), p. 26.

Chart 10





14


(Canberra: 2009), p. 26.

During the period 2000‐09, government expenditure on defence (as a proportion of

total government spending) remained relatively constant except for Singapore and

Vietnam. Vietnam exceeded Singapore in this category in 2000 and 2001. Between

2002‐06 Vietnam was the only country in the sample in Chart 12 to experience

steady decline. In 2007, Singapore and Vietnam both experienced a drop in the

proportion of government expenditure on defence. Vietnam bottomed out in 2008‐

09.

Conclusion

Vietnam does not provide reliable data on its military budget, defence expenditure

or military arms and equipment procurements. Since 2004 Vietnam’s Ministry of

National Defence has included some reference to budget matters in Defence White

Papers. But Vietnam has not been forthcoming in providing details of what is

included – and more crucially what is not included – in these figures. For purposes of

analysis Vietnam’s figures should be used as a base line.

Non‐Vietnamese defence sources, such as Australia’s Defence Intelligence

Organisation, routinely provide estimates that Vietnam spends much more than it

admits, both in terms of constant U.S. dollar figures (converted from Vietnamese

dông) and as a percentage of Gross Domestic Product.

Vietnamese defence spending is closely tied to the state of its economy. Generally,

the defence budget and defence expenditures rise when the economy grows. When

the economy experiences difficulties, as in late 2007‐2008, defence expenditure falls.

Vietnam’s economy has rebounded from the global financial crisis and this has led

Vietnam to increase its defence budget. Because the usual open sources on

Vietnam’s defence expenditure for the year 2010 have not been published, any

assessments about the 2011 defence budget should be treated as preliminary. This

Briefing Paper makes the qualified assessment that Vietnam’s defence budget did

not increase by seventy percent. It is more likely that it increased by less than half

that amount. It is clear that defence expenditures for 2011 have risen and may mark

the commencement of trend of rising defence expenditures that were interrupted by

the global financial crisis.

Vietnam’s defence expenditures appear relatively modest when placed within a

comparative regional framework. Vietnam is a middle ranking country when a

comparison is made on the basis of the percentage of GDP devoted to the defence

budget. Vietnam ranks fifth among the top six Southeast Asian countries in terms of

defence

expenditures

and

only

contributes

a

modest

eleven

percent

to

total

regional

defence expenditures.





16

Chart C

Vietnam: Selected Arms Acquisitions, 2003‐2010

Item Contract Delivery Cost US$

5 Su‐22 Fitter H/J/K fighter aircraft modified for anti‐

shipping operations

2003 2004

75 48N6/SA‐10D NS and 2 S‐PMU‐1/SA surface to air

missiles

2003 2005‐06 $200‐

$380m

4 Su‐30MK2V/Flanker FGA aircraft 2003 2004 $100‐

$120m

50 Kh‐29/AS‐14 Kedge anti‐shipping missiles 2004 2004

20 DR‐76 gas turbines for Project 12418 Tarantul fast

attack craft

2004 2008

20 Kh‐31A1/AS‐17 anti‐ship missiles 2004 2004

20 DR‐77 gas turbines for Project12418 Tarantul fast

attack craft

2004 2008

400 Kh‐35 Uran/SS‐N‐25 anti‐ship missiles 2004 2008‐10

50 R‐73/AA‐11 Archer SRAAM air to air missiles 2004 2004

8 Su‐22/Fitter‐H/J/K FGA aircraft 2004 2005‐06

10 PZL M28B Bryza‐1R/Skytruck maritime patrol

aircraft

2005 2005

150 T‐72 Main Battle Tanks 2005 2005 $150m

40 Su‐22K/Fitter FGA aircraft* 2005 2005

2 Gephard‐3 frigates, 40 Yakhont/SS‐N‐26 anti‐ship

missiles, 2 K‐300P Bastion‐P coastal defence missiles

2005‐07 2009‐10 $300m

4 DT‐59 gas turbines for Gepard frigates 2006 2010

VinaSat‐1 dual civil‐military communications satellite 2006 2008 $300m

200 9M311/SA‐19 Grison surface to air missiles 2007 2009‐10

4 Svetlyak‐class Project 1041.2 fast attack craft 2007 2011 $40m

4 Kolchnya air search systems 2009 2009 $54m

100 R‐73/AA‐11 Archer SRAAM air to air missiles 2009 2010

8 Su‐30MK/Flanker FGA aircraft 2009 2010 $400‐

$500m

6 Project 636E Kilo‐class diesel electric submarines 2009 2013+ $1.8‐$2.1b

12 Sukhoi Su‐30MK2 FGA aircraft 2010 2011‐12 $1b

Total

$4344‐

$4,944m

Source: Stockholm International Peace Research Institute, Arms Transfer Database. *IISS, The Military

Balance, 2005‐06, p. 324; The Military Balance, 2006, p. 302; and The Military Balance, 2007, p. 384.

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Thayer Vietnam's Defence Budget