Estonia Earmarks 2.2 Percent of GDP for Defense under 2017 Budget

by Dan Darling, International Military Markets Analyst, Forecast International.

Under the Estonian government’s 2017 budget, recently has passed by the Parliament, topline defense spending will reach a record high. The FY17 state budget will see government expenditures climb by 7.6 percent year-on-year, with defense receiving a 5.8 percent boost to bring military spending up to EUR477 million ($498 million). More importantly, the uptick in military-related spending will increase the defense budget to 2.2 percent of GDP – above the symbolic 2 percent of GDP minimum threshold required of its members by the NATO Alliance. 

Estonia’s new government, a three-way coalition led by Prime Minister Juri Ratas of the left-leaning Center Party, has fiscal leeway to bolster spending thanks to the country’s low fiscal deficit (0.5 percent for 2016) and national debt (9.4 percent of GDP).  Even with the spending boost, the FY17 budgetary imbalance is only expected to leave the country with a deficit of 0.6 percent of GDP.

Defense has been a priority within the larger government budget since back in 2012, when the military budget benefited from a 20 percent year-on-year nominal increase. Having endured the worst of the global economic recession while successfully bringing its budgetary house into order, Estonia began turning its attention to the neglected area of defense. With an eye on meeting its NATO investment obligations, Estonia fixed its efforts on creating the necessary infrastructure and military capability to both support its Alliance commitments and defend the homeland against a potential threat from Russia.

Ongoing Russian provocations along Europe’s former Soviet periphery have served as a wake-up call for many European nations, but in particular have evoked apprehension in the Baltic Sea states. While Estonia is historically inclined to view neighboring Russia as a threat to its sovereignty, its fears have amplified in the wake of Russia’s March 2014 annexation of Crimea, its militarized support for the destabilization of parts of Eastern Ukraine, and the ongoing buildup of military capacity in the Kaliningrad coupled with large-scale snap defense exercises along Russia’s borders with the Baltic nations.

In response, the NATO Alliance has bolstered its presence in the Baltic area, including rotating deployments, military exercises, and the U.S.-funded European Reassurance Initiative aimed at bolstering the defense capabilities of NATO partners in Eastern Europe. The U.S. recently completed $11.2 million worth of investments in the Tapa army base, 50 miles southeast of the Estonian capital of Tallinn. NATO forces will use the base much like they use the Amari air base in Harjumaa in the northwestern part of the country, where rotating NATO Baltic Air Policing patrols are stationed.

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The Forecast International International Military Markets series examines the military capabilities, equipment requirements, and force structures inventories of 140 countries, with corresponding coverage of the political and economic trends shaping the defense market outlook for individual countries and regions.Forecast FI Logo

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