Defense Budget Forecast
Vietnamese defense expenditure is valued at $5.8 billion in 2022 and registered a CAGR of 4.5% during 2018–22. However, Vietnam's defense expenditure is projected to grow at a CAGR of 8.5% to value $8.5 billion by 2027, mainly due to the country's plan to increase its defense capabilities to counter Chinese aggression in the South China Sea. Various ongoing issues with respect to its maritime boundaries are anticipated to be the major drivers for the country's re-armament initiative. The country's plans to modernize its naval capability will boost defense spending over 2023–27. In addition, Vietnam will continue to strengthen its air capabilities with the procurement of advanced fourth-generation fighter platform to secure the country’s air space. The acquisition budget stands at $1.2 billion in 2022 and registered a CAGR of 4.9% during 2018–22, while it is projected to grow at a robust CAGR of 8.1% over 2023–27 to reach $1.8 billion by 2027.
Drivers of Defense Expenditure
As per GlobalData’s Vietnam’s Defense Market 2022-2027 (free) report, disputes in the South China sea, and military modernization are the primary drivers of Vietnam’s defense expenditure.
Vietnam has had a strained relationship with China, which has deteriorated considerably in the last couple of years. Tensions escalated in May 2014, when a Chinese state-owned company set up an oil rig in the waters of the contested region (Paracel Islands) in the South China Sea. This agitated the Vietnamese government, which viewed it as a Chinese invasion into its sovereign maritime area. The situation worsened when Chinese ships attacked Vietnamese maritime police vessels, resulting in several boats being damaged and six Vietnamese sailors being injured. This led to public outbursts in Vietnam, demanding action against the Chinese government.
To counter the movement of Chinese ships in the region, Vietnam has entered into a strategic partnership with Japan to facilitate maritime security relations. With China rejecting the International Court of Justice's ruling on the South China Sea and proceeding to fortify several islands with HQ-9 long-range air defense systems and base its J-11 fighter planes on newly created artificial islands, the issue over the disputed islands is unlikely to be settled in the near future.
Vietnam is expected to procure frigates, patrol vessels, and other equipment to strengthen its naval forces as a result. Additionally, in May 2022, Vietnam and India extended their bilateral partnership and signed a mutual logistics support pact. As a part of their military modernization, Vietnam received 12 units of High-Speed Guard Boats from India which were built under a $100 million defense line of credit offered to Vietnam. These boats are expected to strengthen Vietnam’s naval force to defend against Chinese advancement in South China sea.
Access full report here.
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