LONDON – Intensifying great-power rivalries have made increased defense spending a priority that few states dare to question. This growing sense of insecurity propelled global military spending, which increased by 37% from 2015 to 2024, when it reached $2.7 trillion – a sum almost equivalent to Africa’s entire GDP.
The NATO alliance accounted for over 50% of this spending, with most of its members investing more in defense at the expense of other public spending. In Canada, the United Kingdom, and Germany, foreign aid has taken a hit. Tepid public support for such programming makes it politically expendable, while security anxieties and the search for a defense-industrial boom fuel military spending.
Yet surging military budgets have not improved global security. Instead, military investment increases instability, destroys ecosystems, fuels arms races, and heightens conflict risks. It can also indirectly crowd out public investment in a guns-versus-butter tradeoff. The financing gap for the non-climate-related Sustainable Development Goals would have easily been closed in 2024 if the increases in defense spending had been redirected for that purpose. And since sectoral investments in health, education, and energy infrastructure have larger “fiscal multipliers” than military spending, these investments would likely have boosted GDP by more than we can expect defense spending to.
Public investment in human capital and infrastructure builds resilience and makes it more likely that societies will resolve disputes without violence and displacement. Most countries’ biggest security risks are not territorial; they are threats like pandemics, climate change, and cyberterrorism. An aid-for-defense swap may be politically rational, but it amounts to robbing Peter (a resilience-based multidimensional understanding of security) to pay Paul (a narrow, militarized understanding).
The development-finance gaps resulting from this swap are unlikely to be funded by private sources. Fragile countries tend to be more dependent on grants and highly concessional loans, and social sectors generally do not generate the kinds of returns that private investors seek. That is why countries like Haiti and Sudan have long struggled to attract foreign direct investment, and why infrastructure projects in larger and less risky emerging markets appeal to private investors.
Now, pension funds, insurance companies, and banks are rushing to seize opportunities created by increased public-sector investments in defense, some of which are being directed by new multilateral entities like the Defense, Security and Resilience Bank. Stimulating such capital flows raises questions about the future of global ESG (environmental, social, and governance) investment frameworks, which have typically assigned defense industries a higher risk, owing to uncertainties about their business ethics, product use, governance, and environmental impact.
Security financing does not have to be a zero-sum game. An improved defense financing framework could help us address the complexities of today’s collective security challenges.
A better approach would have three pillars. First, it would embrace a more multidimensional perspective on security. In June, NATO members agreed to spend 5% of their GDP on defense by 2035, with 3.5% of GDP focused on core defense and 1.5% on security-related spending to “protect our critical infrastructure, defend our networks, ensure our civil preparedness and resilience, unleash innovation, and strengthen our defense industrial base.” For now, at least, the 1.5% is more focused on civilian defense than a holistic understanding of security.
We have already seen creative accounting practices to minimize the fiscal burden of the higher target, as in the case of Italy’s effort to include a €13.5 billion ($15.8 billion) suspension bridge. Moreover, direct contributions toward Ukraine’s defense will count toward the 5% target, providing a template for funding future military operations elsewhere in the world.
In a promising sign, some NATO members are now exploring whether development spending in security-adjacent areas like international peacekeeping missions, early-warning systems for climate shocks, and resilient supply chains for essential medicines and vaccines might count toward the 1.5% target. But while shoehorning these budget lines into NATO’s accounting framework could protect them from cuts, it might also jeopardize the integrity of standardized defense accounting if the boundaries of “security-related” remain unclear. It also raises the likelihood of “securitizing” aid and politicizing engagement in ways that will endanger lives.
A better approach, then, is to measure the full spectrum of national inputs for global security and assess their value in terms of military defense and deterrence, as well as economic growth and resilience. As the 2030 deadline for achieving the SDGs approaches, a multidimensional perspective on security could be a good starting point for discussing its successor framework.
The second pillar is a modern security financing framework featuring more transparent estimates of defense investment needs. In NATO’s case, these are classified, even though transparent national estimates of minimum defense-investment requirements are key to preventing waste and ensuring that spending deters legitimate threats without raising the likelihood of conflict.
Setting military-spending targets as a share of GDP assumes that countries should spend whatever they can afford on defense, rather than focusing on what they (or their allies) actually need to contain genuine threats. Such a crude formula for burden-sharing inevitably militarizes economies by turning weapons proliferation and global conflict into industrial and commercial advantages. Input spending targets incentivize quick disbursements that can jeopardize procurement processes intended to ensure value for money.
Releasing aggregate estimates of true defense needs should be possible without compromising national security. Doing so would ensure accountability for defense outlays and allow for multidimensional security investment that targets both military and non-military threats.
The third pillar comprises stronger fiscal safeguards for key spending priorities. Global defense spending now outpaces development aid by 13 to one, a trend that is already generating ripple effects – from diplomatic layoffs to the collapse of global health investment. The opportunity cost of such massive defense investments could well be global cooperation itself.
But some countries are seeking a better way. “We are building weapons, when we should be building social infrastructure,” warned South African President Cyril Ramaphosa at this year’s United Nations General Assembly, echoing concerns made by Brazil, Kazakhstan, and Nepal (among others). For her part, Mexican President Claudia Sheinbaum, recognizing the symbiotic relationship between diplomacy, defense, and development, has proposed that G20 members earmark 1% of their military spending for sustainable development.
International cooperation is at a turning point, with the Global North far more committed to funding defense than defending development. A 21st-century approach to financing security threats should ensure that defense and development pull in the same direction.
Nilima Gulrajani is Principal Research Fellow at ODI Global, where she leads the Donors in a Post-Aid World program, and an associate at Trinity College, University of Toronto. #Nepal
Copyright: Project Syndicate, 2025.
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