Defence spending to GDP ratio would remain almost unchanged
However, given that nominal GDP is assumed to grow by an average of 3.2%
per year between 2017 and 2021 (Finance Ministry projections), the defence
spending to GDP ratio would remain almost unchanged at 1.2% (scenario 1).
Extrapolating the Finance Ministry’s GDP projections until 2024,
we estimate that a total increase of EUR 43.5 bn over seven years to EUR 80.5
bn in 2024 would be necessary to reach the 2% of GDP target (scenario 2 in
chart 8 and 9). This is equivalent to an annual increase in defence spending of
11.7% rather than the 3.5% planned in the budget. In a third scenario, we take
the Finance Ministry’s budgetary figures until 2021 and then estimate the
required spending increases through the remaining three years to reach the 2%
target by 2024. The result is a considerable annual spending increase of 23.8%
(or EUR 12.7 bn per annum) between 2021 and 2024.
Our scenario analysis shows that reaching the NATO target by 2024 under the
current medium-term budget planning appears rather unlikely. However, it is
important to note that the budget plan is only a draft prepared by the current
government in order to provide the groundwork for next years’ fiscal planning.
Adjustments of the medium-term budget are common under a new government.
EU Forecast
euf:ba18.d:75/nws-01