On Thursday, March 26th, the Saeima supported amendments to the National Defence Financing Law in its final reading, which mean national defence spending must be equivalent to at least 5% of gross domestic product (GDP) every year from next year.
Anda Čakša, the chairwoman of the Budget and Finance (Tax) Committee responsible for the bill, emphasized that increasing national defense funding is the highest state priority saying:
“This decision is essential both for strengthening our security and as a clear signal to our NATO allies about Latvia’s commitment to investing in defense in the long term. At the same time, defense investments serve as a significant driver of economic development, promoting the development of local industry, innovation, and infrastructure.”
Defence spending is already projected at 4.9% of GDP this year and if economic growth is weak, could conceivably end up being above the 5% threshold even before it becomes compulsory. Similar trends have been seen in the past.
A decade ago, Latvia was spending just 1% of GDP on defence, as reported by LSM at the time. A move to increase the level to 2% by 2020 was seen as significant acceleration – but subsequent events have left a different impression.
However, the Ministry of Finance, updating its economic growth forecasts, points to a faster growth in gross domestic product than previously forecast. Accordingly, the previously planned share of defense spending in 2027 would be equivalent to 4.81% of GDP, therefore, additional funding will be required to achieve the 5% target. On the other hand, those forecasts do not take into account the current economic turmoil caused by war in Iran and the Middle East which might send the economy into reverse.
The new law sets national defence funding at a minimum of 5% of the gross domestic product forecast for the relevant year, thus replacing the previous regulation, which provided for funding of no less than 3% of GDP.
“The amendments are necessary taking into account the changing security situation in the region and the need to strengthen the country’s defence capabilities. Increasing defence funding is essential to ensure the development of the combat capabilities of the National Armed Forces, the hosting of allied forces in Latvia, as well as the development of military infrastructure and the defence industry,” said a Saeima release.
Regardless of the level of defence spending, proper oversight of the use of the additional funds will be of equal importance. Scandals such as the expensive installation of a “sculpture” in the form of a surplus armoured vehicle on a concrete plinth are paid for by the defence budget but make a contribution of zero to national defensive capabilities.
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