In June 2025, at the NATO summit in The Hague, 31 of 32 member states signed a commitment to increase defense spending to 5% of GDP by 2035. Spain received an exception. Signatures were placed — there is no verification mechanism for compliance until 2029. This very step was essentially highlighted by the IMF in its Fiscal Monitor for April 2025.
What the IMF says in numbers
The report's authors — IMF Fiscal Affairs Department Director Vítor Gaspar, his deputy Era Dabla-Norris and Marcos Popowski-Ribeiro — found that global public debt will increase this year by 2.8 percentage points, more than double the 2024 rate, and will exceed 95% of global GDP. By the end of the decade, it will approach 100% of GDP, exceeding the pandemic peak.
In the worst-case scenario — 117% of GDP by 2027. Among the drivers: tariff wars, market volatility, and precisely the increase in defense spending, which the IMF directly calls a persistent and long-term pressure on budgets.
"Countries already have limited fiscal space and face new permanent expenditures — such as defense."
IMF Fiscal Monitor, April 2025
Short-term benefit versus medium-term trap
The logic of defense stimulus is well-known: the state orders — enterprises produce — employment grows. The Keynesian multiplier in action. But the European Commission in its spring 2025 forecast clarified: the neoclassical school identifies long-term crowding-out effects — when military spending diverts capital and labor from private investment and increases fiscal deficits.
Researchers at the Center for Global Development (CGDev) in a paper for the IMF's Independent Evaluation Office specify: in developed economies where public debt already exceeds 100% of GDP on average, increased defense spending inevitably creates harsh trade-offs — especially against the backdrop of rising pension and healthcare spending and limited room for tax increases.
- RAND research: the multiplier from civil infrastructure — housing, transport, education — is higher than from military purchases.
- New Economics Foundation (London): the defense industry generates fewer jobs per unit of spending than green or social infrastructure.
- PIIE (Washington): if European countries spend 5% of GDP on purchases of American weapons, the stimulus for their own economies will be minimal.
Where Ukraine fits in this balance
For Ukraine, the question is not abstract. The IMF forecasts that the country's public debt will exceed 100% of GDP for the first time in 2025. Meanwhile, the very increase in defense spending by allies — something Kyiv is counting on as a strategic signal of support — is one of the factors worsening the global fiscal climate and complicating the mobilization of new aid packages.
The IMF does not propose cutting defense budgets. The Fund insists on "gradual fiscal consolidation within credible medium-term plans" — that is, on compensatory reforms: reducing energy subsidies, overhauling pension systems, increasing revenues.
If 31 NATO states truly reach 5% of GDP by 2035 without structural revenue reforms, the question is not whether debt will grow — but who will face a refinancing crisis first: peripheral alliance members or those already negotiating for an exception, like Spain in The Hague.
