Defence Spending Of 50 PC Countries Increased In The Past Few Years
The actual and projected build-up of defence spending entails important macroeconomic trade-offs: Reports
CHENNAI: Between 2020-24, 50 per cent of countries increased defence spending with 40 per cent allocating over 2 per cent of their GDP. On average, fiscal deficits may worsen by about 2.6 percentage points of GDP, and public debt will increase by about 7 percentage points within three years of the start of a buildup and wartime may see debt jumping by about 14 per cent of GDP, finds the IMF.
Over 2020–24, 50 percent of countries worldwide increased their defence spending budgets and, as of 2024, almost 40 per cent allocated more than 2 per cent of GDP to defence spending, compared with 27 per cent countries in 2018.
According to the Stockholm International Peace Research Institute (SIPRI) Arms Industry Database, arms sales by the world’s largest 100 arms firms have doubled in real terms over the past two decades. These numbers are set to increase, as North Atlantic Treaty Organization (NATO) members committed in June 2025 to raise their annual defence and security-related spending to 5 per cent of GDP by 2035, more than double the previous 2 per cent guideline.
The actual and projected buildup of defence spending entails important macroeconomic trade-offs.
On average, fiscal deficits worsen by about 2.6 percentage points of GDP, and public debt increases by about 7 percentage points within three years of the start of a buildup, while external balances deteriorate as demand is geared toward imported equipment. Wartime booms are especially costly, with public debt jumping by about 14 percentage points of GDP and social spending falling in real terms.
Defence spending booms generally lead to a deterioration in countries’ fiscal positions. Consistent with the evidence discussed earlier about booms being financed predominantly by government borrowing.
The public-debt-to-GDP ratio increases by almost 7 percentage points more than that of countries not ramping up defence spending. Fiscal costs are not limited to rising debt and risks to fiscal sustainability; booms can also crowd out non-defence primary spending.
There is a clear policy trade-off between higher defence outlays and other public spending priorities. This implies cuts in the budget, with non-defence primary spending declining by more than 20 per cent in real terms in the three years following a boom.
The decrease in social spending amounts to about 1 percentage point of GDP and spans multiple categories of spending, including social protection, health, and education.
Taken together, these findings underscore the importance for policymakers of carefully considering financing choices when scaling up defence spending, says IMF.
