The "defense/GDP proportion" indicator is essential for the analysis of the relative volume of defense sector. It represents what portion of country's Gross domestic product is allocated to defense. Moreover, it is indicative of national priorities. If government spends more money on defense it means less money for social transfers, education and healthcare. The cross-national comparison of the defense/GDP proportions will put together the basic concepts of the participating countries about national security and defense, regional political environment, and the fiscal policies for achievement of national goals.

As shown in Table 1, in 2001 Turkey is an outstanding leader in defense spending among all the countries in Southeast Europe with its 4,9%-of-GDP defense share. It keeps relatively high level of defense expenditure through the whole period 1999-2001. While the 5%-portion of defense sector is traditional for Turkey, Croatia undoubtedly shows its intention to minimize defense input, for there is a 1,6%-change of the Croatian defense portion between 1999 and 2001. In 1999 Croatia takes the second place (3,4% of GDP, after Turkey) in terms of defense spending, while in 2001 it is fourth (2% of GDP). (See Chart 1.)

Other countries like Bulgaria and Romania keep their defense share of the GDP comparatively stable at the average 2%-2,7% zone, even though in the particular case their defense portions are at the two opposite limits Bulgaria and Romania are reforming their Armed forces. They certainly need more resources for military modernization, but the ongoing economic transaction and the parallel deficiency in the other public areas (besides defense), hold up the relative increase of defense sector. Hence, these countries look to GDP growth for more defense resources, as the defense sector has already obtained a fixed place in the National budget, and a relative growth of the GDP would cause a real increase of the total defense resources.

Slovenia has the best economic indicators among all the countries. Yet the allocated resources for national defense come up to 1.25%-1.95% of GDP, which fact makes Slovenia notable for its comparatively low defense spending. But the modest portion of defense expenditure is slightly misleading, for Slovenian GDP per capita is the largest in amount.

FYROM spends about 2% of its GDP on defense. The portion of its defense expenditure through 2000-2001 is similar to that of Romania. In 2001 (See chart 4), FYROM (1,99% of GDP) closely follows Romania (2,01% of GDP) and Croatia (2% of GDP).

Bulgaria has the most consistent straight horizontal trend of defense spending as percentage of GDP through the 1999-2001 period (See Chart 3). In contrast, the curve representing the trend of Croatian defense costs portion has the sharpest negative slope. The proportion shifts of Romania, Turkey and Slovenia are not that remarkable for their fluctuations (See chart 3).

Turkey is an indisputable leader in terms of defense spending with a military budget of $ 11,3 bln (See Table2 and Chart 5). All the other five nations put together spend just 17,4% of the Turkish defense budget. As a matter of fact Turkey spends 15 time as much as Romania, the second biggest defense spender in the region, and 23 time as much as Croatia (3-rd).

But comparing countries only per defense spending in absolute figures is not completely adequate, for they sizably differ from each other in population, land area, economic development, political environment, etc. To this end a comparison between Southeast European nations in terms of total defense costs per capita is more instructive (See table 2).

Again, Turkey leads the ranklist with $ 176 of defense costs per capita (See table 2 and Chart 6), followed by Slovenia with $ 138, and Croatia with $ 112. Bulgaria, Romania and FYROM are far behind. The countries could be divided in two groups. Turkey, Slovenia and Croatia form the first group (A), which consists of countries with total defense expenditure per capita ">= $100". Bulgaria, Romania and FYROM form the second group (B), which consists of countries with total defense expenditure per capita "<= $50". This classification reflects "GDP per capita". This explains, why Slovenia, which is next to the last in the total defense expenditure list and last in the Defense/GDP proportion list, is ranked second in the list of total defense expenditure per capita. The two main factors that locate the countries in their groups are: 1) GDP per capita and 2) defense/GDP proportion.

I. Personnel Costs

"Personnel" is one of the two major articles of "Operating costs", together with "Operations and Maintenance", but it is significant enough to be treated and analised independently It includes pay, allowances, employer's contribution to retirement funds and pensions (they are included only in the personnel costs database of Slovenia), paid to military and civilian personnel and military and civilian retirees. This article comes up to more than a half of the Defense Budget in lots of countries.

Personnel costs run up to more than 50% of the total defense expenditures in three of the Southeast European countries in 2001 (See table 3) in comparison with 1999 when four nations spend more than half of their defense budgets on personnel. Moreover, there is a tendency of reduction of personnel costs portion in five of the considered six cases. Such a tendency is most notable in Bulgaria and Turkey, where the decrease of the personnel costs portion is 20%. There is a 15%-diminution in Slovenia. Romania also shows a decline of 18% in 2000 in relation to 1999, but data for 2001 is not available. FYROM shows the same decreasing tendency of personnel costs portion, but the shift here is not that remarkable (only 3%).

The downward trend is also proved by the shifts of the annual averages. In 1999 the average personnel costs amount to 56,9% of defense budget, compared to 51,8% in 2000 and 49,4% in 2001. Only the trend of Croatian personnel costs portion shows a positive shift from 58,6% in 1999 to 68% in 2001. This fact is due to the drastic cut of the expenses on "operations and maintenance" and "procurement and construction" in Croatia through the 1999-2001 period, which has icreased the personnel costs portion relatively.

II. Operations and Maintenance Costs

"Operations and maintenance" is the other major article of "Operating costs". It includes items like ammunition, explosives, petroleum products, non-concurrent spare parts, and other equipment and supplies.

The O&M costs portion is traditionally smaller than the personnel costs portion, but it shows a tendency of relative increase. The period average of the O&M costs as percentage of total defense costs shifts from 21,1% in 1999 to 26,7% in 2000 and 25,6% in 2001 (See table 4). All the countries increase their O&M share, except Croatia, which reduces its O&M portion from 33,3% in 1999 to 21,4% in 2001 (it is a change of 36%). On the other hand, Bulgaria registers the biggest upward proportion shift. It increases the O&M share of its defense budget from 20,5% in 1999 to 29,3% in 2001, which is a change of 43%.

In 2001, FYROM is a leader in terms of Operation and maintenance costs portion of defense budget (35,8%). It is followed by Bulgaria (29,3%) and Turkey (23,7%). Slovenian and Croatian are last with O&M portions of 19,3% and 21,4%, respectively.

III. Procurement and Construction

Procurement and construction costs present the amount of defense investment. Defense investment includes all sorts of major equipment like missile systems, aircraft, artillery, combat vehicles, engineering equipment, weapons and small arms, transport vehicles, ships and harbour craft, military constructions, etc.

The "portion of defense investment" indicator shows great differences among the countries (See table 5). Each nation has its own vision of national defense, own plans for restructuring or modernization of the armed forces, own concept of defense budget development. If you take a close look at the announced plans of the countries in Southeast Europe for defense system development, you will find that often there are a number of obstacles that deter plans' transition into programs. On the one hand, there are some fluctuations of the economic performance of a few countries, which results in hold-backs to GDP growth and this certainly affects defense procurement and construction. On the other hand, some countries experience difficulties with the implementation of their military reforms in time, according to the plans. The detention of the operating costs reduction prevent countries from enabling the necessary increases of defense procurement and construction portion of defense budget.

Turkey traditionally keeps its defense investment share at an extremely high level. In 2001, it spends nearly half of its defense budget (47,2%) on procurement and construction, while the average for the region is 25,5%. Moreover, Turkey raises its defense investment from 41,7% in 1999 to 47,2% in 2001, which is a 13%-increase.





Bulgaria and Slovenia raise the procurement and construction portion with 76% and 24%, respectively. Croatia also raises its investment from 7,7% in 1999 to 10,7% of the defense budget in 2001, after a shift down to 4,4% in 2000. Romania and FYROM keep their investment portions approximately constant at above the average level.

In 2001, Slovenian investment portion is at the average level; Romania, Turkey and FYROM are above the average, while Bulgaria and Croatia are under the average.

IV. Research and Development

The portion of "Research and development" is rather negligible in comparison with the other general articles of defense budget. It runs up to less than 1% of the total defense expenditures in all the countries in Southeast Europe. The R&D share varies every year and usually no steady trends are noticed. For example, the average portion of R&D in the region comes up to 0,3% in 1999, compared to 0,23% in 2000 and 0,33% in 2001.
In 2001, Bulgaria allocates the biggest R&D portion (0,7%), followed by Romania (0,5%) and FYROM (0,2%). Turkey, Slovenia and Croatia spend less than 0,1% of their total defense costs on research and development.
The R&D portions show positive trends only in Bulgaria, and partly in Slovenia. Turkey keeps its R&D portion approximately steady. The rest of the countries reduce the share of research and development expenses.

The greatest positive shift is observed in Bulgaria. The R&D portion increases 16 times in 2001 (0,7%) in relation to 1999 (0,04%). The greatest negative shift is in Croatia, from 0,5% in 1999 to 0,04% in 2001, which presents a 13-time shrinkage. Romania also diminishes its R&D share in a large scale from 0,9% in 1999 to 0,5% in 2001.

V. Development of the Functional Structure of Defense Budget(till 2005)

The comparison between the estimates of the Southeast European countries about the future development of defense expenditures traces out a few common tendencies in defense budget planning to 2005. Of course, the estimates of the participating nations may differ from the actual figures in the future but despite this, they express the general plans for development of the defense budget's functional structure. And major changes and shifts in the functional structure are useful changing priorities in the defense sector. That is why they are used so often in periods of transition and restructuring. If you analyze these fluctuations, you will be able to point the goals of budgetary policy and gauge accomplishment of these goals.

The following conclusions can be drawn:

1. The Southeast European nations will generally diminish the portion of personnel costs. Some countries like Turkey have set their personnel costs portion at a fixed level and major changes could hardly be expected.
   
2. The average portion of O&M costs will stay approximately constant. In spite of this, some substantial positive shifts are expected in Slovenia and Croatia.
   
3. The procurement and construction portion will slightly increase. The most substantial rises are planned in Bulgaria and Croatia.
   
4. The average portion of the R&D costs will increase couple of times but will stay less than 1% of the defense budget. Bulgaria plans the most outstanding proportion shift of R&D as in 2005 it will allocate 3,4% of its total defense expenditures to R&D.

The defense forces structure of the defense budget generally consists of land forces, naval forces, air forces, support and command. The following tables show that there is a rise of the average expenses on land forces, support and command, while there is a decline in the portion of naval forces and air forces.
In 2001, the average portion of land forces runs up to 48,8% of defense budget, compared to naval forces - 7,2%, air forces - 12,6%, support - 21,9%, and command - 8,25%. The greatest shift is observed at command expenditures, which increase with 83% in 2001 in relation to 1999. Support costs rise with 45,5% and so does land forces costs with 4,3%. There are decreases in naval and air forces costs with 11% and 39%, respectively.

In 2001, the largest "land forces" portion allocated by Croatia. In comparison with it, Tukey is first per "naval forces" portion and "support" portion, and Bulgaria is first per "air forces" portion and "command" portion.