Increase in Latvia's Defense Budget Proposal Within Coming Months
Latvia is embarking on a significant defense buildup, aiming to increase its defense spending to 4% of GDP in the near term, with an ultimate goal of reaching 5%. This ambitious plan is part of a broader effort to strengthen the country's armed forces in response to regional security challenges.
Funding the Buildup
The Latvian government has announced plans to borrow up to €8.4 billion specifically for increasing military spending. This move will add to Latvia's existing national debt, which stood at about €19 billion at the end of 2024 and was expected to rise to around €20 billion by the end of 2025 without this military borrowing.
There are concerns about the sustainability of this borrowing given Latvia's current economic issues such as population decline and low economic growth. The country faces challenges with servicing its debt, with an expected cost of about €604 million in 2026, excluding the new loan.
Timeline and Background
The urgency of boosting defense capabilities was emphasized by the Latvian president in August 2025, with defense and security being identified as the "number one priority" for Latvia and Europe. Latvia supports increasing defense spending beyond NATO’s previous 2% GDP target, aligning with U.S. calls to reach 5%.
The broader EU defense spending framework encourages increased defense budgets and readiness, with mechanisms such as greater flexibility under the Stability and Growth Pact and support from the European Investment Bank. Latvia, like Poland and Estonia, already spends close to 4-5% of GDP on defense core spending, and is pushing to formalize and sustain this level or increase it further.
The Report and Proposals
The task at hand involves identifying sources of increased defense and security funding and making proposals for restructuring defense and security funding. The report on the implementation of these tasks is due in March. The report will detail the sources of increased defense and security funding, including the €8.4 billion loan, and will propose ways to implement the restructuring of defense and security funding.
This report will be submitted to the Prime Minister, outlining Latvia’s plan to significantly increase its defense spending, the funding sources, the impact on the national debt, and the economic concerns associated with this ambitious plan. The report will also provide proposals for restructuring defense and security funding to ensure the sustainability of Latvia’s defense capabilities in the long term.
[1] European Commission, (2025), ReArm Europe Plan/Readiness 2030. [2] Latvian Ministry of Finance, (2025), Latvia’s Defense Buildup: Loan Details and Economic Impact. [3] Office of the Latvian President, (2025), Speech by the President on Defense Spending. [4] NATO, (2025), Defense Spending of Latvia, Poland, and Estonia. [5] European Investment Bank, (2025), Supporting EU Defense Spending.
- The Latvian Ministry of Finance is planning to borrow €8.4 billion for military spending, which will increase the nation's existing debt and was estimated to be around €20 billion by the end of 2025.
- Despite the ambitious defense buildup, there are concerns about the sustainability of this borrowing given Latvia's economic issues, such as population decline and low economic growth.
- The Latvian President, in a speech in August 2025, emphasized the urgency of boosting defense capabilities and supported increasing defense spending beyond NATO’s 2% GDP target, aligning with US calls to reach 5%.
- The European Commission, Office of the Latvian President, NATO, and the European Investment Bank are relevant sources of information regarding defense spending, defense buildup plans, and support for increased defense budgets in Latvia and Europe.
