Defence expenditures and NATO’s 2% guideline
NATO has a common definition of defence expenditure since the early 1950s. The definition is agreed by all NATO Allies. It is regularly reviewed, most recently in early 2023.
Defence expenditure is defined by NATO as payments made by a national government (excluding regional, local and municipal authorities) specifically to meet the needs of its armed forces, those of Allies or of the Alliance. For the purposes of this definition, the needs of the Alliance are considered to consist of NATO common funding and NATO-managed trust funds. The list of eligible NATO trust funds is approved by all Allies.
A major component of defence expenditure is payments for Armed Forces financed from within the Ministry of Defence budget. Armed Forces include land, maritime and air forces as well as joint formations, such as Administration and Command, Special Operations Forces, Medical Service, Logistic Command, Space Command, Cyber Command. They might also include parts of other forces such as Ministry of Interior troops, national police forces, coast guards etc. In such cases, expenditure is included only in proportion to the forces that are trained in military tactics, are equipped as a military force, can operate under direct military authority in deployed operations, and can, realistically, be deployed outside national territory in support of a military force. Expenditure on other forces financed through the budgets of ministries other than the Ministry of Defence is also included in defence expenditure.
Retirement pensions made directly by the government to retired military and civilian employees of military departments and for active personnel is included in the NATO defence expenditure definition.
Expenditures for stockpiling of war reserves of finished military equipment or supplies for use directly by the armed forces are included.
If expenditures for operations, missions, engagements, and other activities are appropriated under the defence budget, they are included in the NATO definition. Expenditure for peacekeeping and humanitarian operations, paid by the Ministry of Defence or other ministries, the destruction of weapons, equipment and ammunition, and the costs associated with inspection and control of equipment destruction are included in defence expenditure.
Expenditure for the military component of mixed civilian-military activities is included, but only when the military component can be specifically accounted for or estimated. For example, these include airfields, meteorological services, aids to navigation, joint procurement services, research and development.
Research and development (R&D) costs are included in defence expenditure. R&D costs also include expenditure for those projects that do not successfully lead to production of equipment.
Military and financial assistance by one Ally to another, specifically to support the defence effort of the recipient, should be included in the defence expenditure of the donor nation and not in that of the recipient.
With respect to military and financial assistance to a partner country, Allies can report their contributions to eligible NATO-managed trust funds related to defence projects. Military equipment and weapons donated from national stocks to a partner country, as well as assistance by military personnel in training are already included. Money provided by other government departments than the Ministry of Defence, through other international organisations, or in the form of direct military aid, is not eligible.
Expenditure on NATO common infrastructure is included in the total defence expenditure of each Ally only to the extent of that country’s net contribution. War damage payments and spending on civil defence are both excluded from the NATO definition of defence expenditure.
NATO uses United States dollars (USD) as the common currency denominator. The exchange rate applied to each Ally is the average annual rate published by the International Monetary Fund.
The 2% defence investment guideline
In 2006, NATO Defence Ministers agreed to commit a minimum of 2% of their Gross Domestic Product (GDP) to defence spending to continue to ensure the Alliance's military readiness. This guideline also serves as an indicator of a country's political will to contribute to NATO's common defence efforts since the defence capacity of each member has an impact on the overall perception of the Alliance's credibility as a politico-military organisation.
While the 2% of GDP guideline alone is no guarantee that money will be spent in the most effective and efficient way to acquire and deploy modern capabilities, it remains an important indicator of the political resolve of individual Allies to devote to defence a relatively small but still significant level of resources.
Budget allocation is a national, sovereign decision, but NATO Allies have agreed that at least 20% of defence expenditures should be devoted to major equipment spending, including the associated research and development, perceived as a crucial indicator for the scale and pace of modernisation.
To learn more, visit Funding NATO.
Allied defence spending data
NATO publishes an annual compendium of financial, personnel and economic data for all member countries. Since 1963, this report has formed a consistent basis of comparison of the defence effort of Alliance members based on a common definition of defence expenditure. Through the links below, you can find data covering the years from 1949 to the present.
Working mechanism
The figures represent payments actually made or to be made during the course of the fiscal year. They are based on the NATO definition of defence expenditure. In view of the differences between this and national definitions, the figures shown may diverge considerably from those which are quoted by national authorities or given in national budgets.
Evolution
Each year, updated tables with nations' defence expenditures are published on the NATO website in PDF and Excel format. The latest version of the compendium provides tables covering key indicators on the financial and economic aspects of NATO defence, including:
- Total defence expenditures
- Defence expenditure and GDP growth rates
- Defence expenditures as a percentage of GDP
- Defence expenditures and GDP per capita
- Defence expenditures by category
- Armed forces personnel strength