Countries’ ability to meet their NATO defence spending targets is predicated on the fiscal capacity to do so. The graph shows NATO countries’ 2024 defence spending versus their debt, as a share of GDP, with the horizontal line demarcating the 2025 NATO spending target for core defence spending (2.0 percent, increasing to 3.5 percent for 2035) and vertical line at the average level of country indebtedness. While countries in the upper left quadrant of the graph are those which are spending above the NATO requirements on defence and are in a solid fiscal position, Canada is amongst countries that need to make up a lot of ground to improve their defence capabilities and meet the NATO target but have less fiscal bandwidth to do so. Canada will find it challenging to purely debt finance the expected increase in defence spending and should consider options to raise revenues or reduce non-defence spending.
For more on how Canada can improve defence capabilities, see this Intelligence Memo.
