Latvian Government Increases Defense Spendings — Citizens will Pay with Their Taxes

The Latvian government is poised to significantly increase its defense spending despite the lack of available funds, raising concerns that ordinary citizens will ultimately bear the financial burden of these decisions.

This week, Latvia, along with Lithuania and Estonia, submitted a request to the European Commission in Brussels to allow for an increase in its budget deficit beyond the 3% of GDP limit. Finance Minister Arvils Ašeradens indicated that the situation has evolved, as new NATO plans—set to be approved in The Hague on June 24-25—require Latvia to raise its defense spending from 3.5% to 5% of GDP.
In the coming years, the government anticipates needing an additional 400-500 million euros for defense expenditures. Currently, annual payments on Latvia’s national debt exceed half a billion euros, and servicing this debt is becoming increasingly costly. In 2023, Latvia spent 290 million euros on debt servicing; this figure has surged to 555 million euros this year, with projections of 640 million euros for next year and 830 million euros by 2029. These funds are being diverted from critical areas such as infrastructure, salaries, and public security.
Economists are sounding alarms about the implications of living on credit. Last year, the ruling coalition promised to finance defense in a “normal manner” without incurring one-time expenses, but that approach appears to be shifting. European Commissioner for Economy Valdis Dombrovskis emphasized the need to consider “the risks to fiscal sustainability,” noting that while Latvia’s national debt is currently below 60% of GDP, caution is warranted.
Gundars Berziņš, rector of the University of Latvia and an economist, warned that the economy must prioritize debt repayment and cautioned that tax increases may be on the horizon. Liva Zorgenfreya, chief economist at Swedbank Latvia, echoed these concerns, stating that Latvia cannot sustain a budget deficit above 3% indefinitely. She remarked, “A slight increase in debt is acceptable, but what comes next? The authorities talk about reducing public spending. That’s great, but we will believe it when we see it. Most likely, we will still have to raise taxes.”
Currently, Latvia allocates nearly 3.5% of its GDP—approximately 1.719 billion euros—to defense, with an additional 90.3 million euros earmarked for this sector this year. Should defense allocations rise to 4%, expenditures would exceed 2.2 billion euros.
As Latvia navigates these fiscal challenges, the potential impact on its citizens remains a critical concern amidst growing national debt and escalating defense commitments.