Romania is expected to invest US$9.39 bn on its armed forces during the forecast period

Wednesday 18 July 2012, Amsterdam

Romanian defense expenditure declined at a CAGR of -11.96% during the review period to an estimated value of US$1.64 bn in 2012 as a consequence of the global financial crisis and fiscal pressures in Romania. The country’s military expenditure is estimated to register a CAGR of 6.78% during the forecast period, to value US$2.14 bn in 2016. Defense expenditure is expected to be driven by factors such as participation in peace keeping missions, joint training operations, and improvements in border control measures. As a result of a decrease in overall defense expenditure, the country’s defense budget as a percentage of GDP is also expected to decline, from 0.8% in 2011 to 0.7% in 2016 (reference see graph).

Romania is expected to invest US$9.39 bn in its armed forces, of which expenditure on the acquisition of military hardware is forecast to be US$1.56 bn, offering foreign OEMs limited opportunities to cater to the Romanian defense industry. Due to the economic crisis, Romania had postponed the procurement of equipment in 2011, which resulted in dropping shares of capital expenditure in overall defense expenditure.

According to Transparency International's 2011 Corruption Perceptions Index, Romania dropped in rank to 25th in the EU. Incidents of malpractice within the country’s military industrial base may limit the growth of the country’s defense sector. In addition to damaging the country’s image in the global arms market, it also discourages foreign OEMs from entering the market.

As a result of low investment on R&D of advanced technology defense systems, the country’s defense capabilities are limited in terms of production of aircraft, small arms, and ammunition. Many domestic companies act as subcontractors to larger European and US defense companies. This forced the country to import defense equipment such as air defense systems, sensors, aircraft and aircraft parts, armored vehicles, missiles, and engines, as domestic suppliers lack the capabilities to manufacture advanced defense systems.