Most G7 nations spend more on debt than defense

Five of the seven largest advanced economies now devote more of their budgets to servicing public debt than to national defence, according to a Bloomberg report published on Tuesday citing calculations by Scope Ratings.iz+1

Germany and Canada are the only G7 members where defence spending still exceeds interest payments on government borrowing. In the remaining five nations, the gap between debt costs and military budgets has grown stark: Italy's debt servicing costs reach 193 percent of its defence budget, the United States stands at 121 percent, and the United Kingdom and France hover just above parity at 105 and 103 percent respectively.caliber

Rising Costs Amid Geopolitical Pressure

The findings arrive at a moment when Western governments face competing demands to increase military spending in response to geopolitical tensions while managing debt loads swollen by pandemic-era borrowing. Higher post-pandemic borrowing costs are feeding into interest payments as governments refinance previously low-cost debt at elevated market rates.reuters

Eiko Sievert, Executive Director for Sovereign and Government Ratings at Scope, warned that "high debt levels combined with relatively large primary deficits increase the sensitivity of public finances to changing market financing conditions". Scope's analysts noted that despite the push to raise military spending, pressure from rising debt service costs remains a more dominant factor shaping fiscal outlooks.caliber+1

Record Costs Forecast

Debt servicing costs are forecast to account for a record-high share of budget revenues in the United States, Japan, France, and China over the next five years. The U.S. Congressional Budget Office projected earlier this year that net interest outlays would rise from $970 billion in 2025 to over $1 trillion in 2026.cbo+1

Germany's relatively favourable position — with interest expenses at just 35 percent of its defence budget — reflects both its historically conservative fiscal stance and its recent push to expand military spending. Scope Ratings noted in July that Germany would need to stabilize its growing debt burden in the long run to retain its top credit grade.bloomberg

The tension between debt obligations and defence ambitions was underscored by Eurasia Group Managing Director Jon Lieber, who told Bloomberg last month that "cash-strapped European nations can't afford to spend more on defense".bloomberg