IMF's Stark Warning: The World is Going Mad, Debt Swells for War
Escalating global geopolitical tensions are now clearly reflected in the budgets of countries around the world. Amid ongoing wars in various regions, including the latest conflict in the Middle East between the United States (US) and Israel against Iran, many governments are choosing to expand their military spending.
The International Monetary Fund’s (IMF) April 2026 report highlights this widespread trend. Over the past five years, around half of the world’s countries have increased their defence budgets. By 2024, nearly 40% of countries were allocating more than 2% of GDP to military spending, up from 27% in 2018.
Moreover, sales of weapons by the world’s 100 largest arms companies have doubled over the past two decades.
After a slowdown in the early 2000s and post-Cold War period, the upward trend in defence budgets has strengthened again, though the scale is somewhat smaller and the duration shorter compared to the Cold War era.
Rising Military Spending, Defence Budget Surges Occurring More Frequently
The global increase in military spending is not only more widespread but also larger in scale. In its study of 164 countries since 1946, the IMF identified 215 major surges in defence spending. On average, these surges last more than 2.5 years, with increases of around 2.7 percentage points of GDP.
This means the current situation is not just a routine budget increase. In many countries, defence spending is rising on a large scale and persisting for a considerable time. Such trends have become more frequent since the mid-2010s.
The majority of these surges occur in developing countries. Around 88% of all major defence spending increases come from emerging market and developing economies, particularly in the Middle East and Africa. In advanced economies, defence budget increases are rarer but generally larger and longer-lasting, especially when linked to wars.
Global defence spending surges are not a fleeting phenomenon. Major increases were common during the Cold War era and then subsided afterwards.
However, in recent years, the pattern has re-emerged. This signals that intensifying global geopolitics is truly pushing more countries to expand their military budgets.
Not Just Rising, the World is Also Bolder in Borrowing for Military Spending
The global rise in military spending is also accompanied by changes in how it is financed. Defence spending surges in many countries are generally not supported by significant increases in government revenues. Instead, around two-thirds of the defence spending increases are financed through wider budget deficits.
This pattern is most evident at the start of the rise. Most of the additional military spending typically occurs in the first year, with nearly all of it completed within three years.
During that phase, many governments opt for the quickest route: widening the deficit. Additional government revenues do exist, but they are much smaller. Meanwhile, budget reallocations from other sectors only become apparent later.
On average, the primary deficit rises by around 1.1 percentage points of GDP in the first year and cumulatively approaches 2 percentage points of GDP by the third year. In contrast, additional government revenues are only about 0.2 percentage points of GDP in the first year and around 1.2 percentage points of GDP overall.
Around 39% of defence spending surges are primarily financed through deficits, 35% through revenue increases, and 26% through reallocations from other expenditures. Nevertheless, deficits remain the primary source of financing overall.
The consequences quickly impact national finances. Within three years, defence spending surges are on average followed by a rise in the fiscal deficit of around 2.6 percentage points of GDP and an increase in government debt of around 6.6 percentage points of GDP.
This shows that large military spending can quickly narrow fiscal space, especially when much of the financing relies on debt and deficit expansion.
Defence Spending Can Boost the Economy in the Short Term, But There Are Still Consequences
Rising defence spending can indeed provide a boost to the economy in the short term.
In non-war conditions, when military budgets increase, a country’s real output can rise by more than 3% compared to times without such surges. This boost arises because higher military spending stimulates domestic demand, through government consumption, household consumption, and investment.
However, this boost does not come without costs. Behind the short-term growth, there are several consequences to consider, from rising inflation and heavier fiscal burdens to deteriorating external balances and the risk of reduced space for social spending.
- Inflation Rises
Surging defence spending can overheat the economy and drive up prices.
In non-war conditions, defence budget increases are followed by a rise in the consumer price index of nearly 3.6% compared to normal conditions. Although this pressure is considered temporary, inflation remains one of the most tangible side effects of increased military spending.
- External Balance Deteriorates
Pressure also emerges from the external sector. When defence spending rises, imports typically increase as well. This is not only due to stronger domestic demand but also because many countries purchase military equipment from abroad. As a result, the current account balance tends to worsen. This risk is greater in countries where the defence industry is not yet strong and still relies on imports of military hardware.
- Risk of Guns vs Butter
There is also the risk of ‘guns versus butter’, where more of the national budget is directed towards defence, while