Military spending has varied across countries Other spending could be reduced to accommodate these new spending needs-including aid to developing countries. And this excludes any outlays that these countries may decide to provide to help Ukraine rebuild after the war. Europe also needs to spend more on building infrastructure if it plans to reduce its dependence on Russian energy. Furthermore, commitments to lower emissions will require additional finance for adapting to climate change. On top of this, these countries are faced with rapidly aging populations which means that health and pension spending would continue to rise. The increases in military spending would thus come against the background of lower growth of tax revenues (due to a weakening of global economic growth) and the need for fiscal consolidation to ensure medium-term fiscal sustainability.
Advanced economies adopted generous fiscal stimulus packages in 2020 to address the consequences of the COVID-19 pandemic, which raised their average debt to GDP ratio by 19 percentage points in 2020. Similar pressures are likely to reverberate in other advanced economies that are grappling with other economic burdens.Īs military spending rises, other spending will come under pressure. In the same vein, the US has affirmed that it will raise military spending in fiscal year 2023. Already, Germany has announced a significant increase in its defense budget from about 1.5 percent of GDP in 2021 to 2 percent in 2022. But with the war in Ukraine, pressures to raise military spending have intensified. This created room for other public spending, such as health and infrastructure. Since the end of the Cold War in 1990, defense outlays have declined as a share of government spending and of the economy’s total output. Prior to the war, military spending absorbed an average of about 6½ percent of government budgets across the world. The war in Ukraine is likely to have a profound impact on budget allocations, at least in developed countries.
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