Members of Houthi security forces stand guard as supporters of Yemen’s Houthi movement participate in a rally marking the 11th anniversary of the military campaign launched by the Saudi-led coalition in Sanaa, Yemen, March 26, 2026.
Mohammed Hamoud Getty Images News | getty images
A new era of high defense spending has arrived inspired to The International Monetary Fund has warned of an emerging “guns versus butter” trade-off, with governments expected to face tough choices over debt and public spending.
The so-called “guns versus butter” dilemma refers to the trade-off dilemma faced by governments when allocating resources between defense expenditure and social programs.
in your latest World Economic OutlookNearly half of the world’s countries have increased their military budgets, the IMF said, noting that arms sales by the largest global defense companies have doubled in real terms over the past two decades.
The IMF said these trends will continue as geopolitical tensions increase, raising serious questions about whether higher defense spending could offset other spending, such as social spending.
Citing an analysis of the experience of 164 countries since the end of World War II, the IMF warned that history shows that surges in defense spending typically weaken fiscal and external balances, and are followed by sharp increases in public debt and major cuts in social spending.
French Finance Minister Roland Lescure acknowledged that the defense versus social spending compromise poses an adverse risk for the government ahead of the country’s 2027 presidential election.
However, he stressed that higher defense spending could produce a “double dividend” by promoting sovereignty and creating more domestic jobs.
“We have to rethink war. Obviously, drones and new forms of war have emerged — and we need to deal with them,” Lescure told CNBC’s Karen Tso on Wednesday on the sidelines of the IMF and World Bank Group spring meetings in Washington this week.
“I don’t think we’re missing any social spending in France; I think we have the highest level of spending. And that’s good. That’s our model,” Lescure said.
“If defense spending is also an industrial strategy that creates jobs, including in areas where people have felt disenfranchised by globalization, they have felt left out of the larger movement towards digital innovation, where we are going to get the double dividend of defense spending, which is more sovereignty, but also more jobs,” he added.
“If we don’t do that … we’re going to face a backlash. We don’t want that.”
‘Trust in the system’
World Bank President Ajay Banga said defense spending has clearly become a priority for many countries, while funding for overseas development has decreased in developed countries.
“On the other hand, even in that period last year, we raised a record amount for IDA21, which is the part of the bank that goes to the poorest countries,” Banga told CNBC on Wednesday.
International Development Association (IDA)’s 21st funding round secured additional $24 billion By the end of 2024, which will be leveraged to the tune of $100 billion in financing. in treasury Used to support 78 of the world’s lowest-income countries to enable investment in areas such as health and education as well as climate resilience.
Banga said, “So, you know, I still have confidence in the system. You have to make the case to the countries that are donating why it’s in their own interests.”
He further said, “Why is it in the developing world to invest in creating jobs for youth, why is it in the interest of taxpayers in the developed world? And mostly it’s because you get a better middle class there, better growth, so your companies, your intellectual property, your products, your jobs will benefit.”
“But at the same time, you get a more stable economic system, and you get better opportunities for young people with less illegal migration. Both things are important, plus and minus.”
Polish Minister: ‘We need to be serious about security’
The EU has recently recognized security and defense as a top priority, partly inspired by Russia’s Attack on Ukraine.
Defense expenditure in group of 27 countries is expected To reach 381 billion euros ($448.8 billion) in 2025, which represents an 11% increase from the previous year and an increase of nearly 63% compared to 2020.
Meanwhile, a US-Israeli war with Iran is set to complicate both factions’ rearmament efforts and support for Ukraine, while further undermining confidence in Washington as a reliable guarantor for Europe’s defense. According To the European Union Institute for Security Studies.
A speaker addresses a crowd of several representative groups and individuals from culture, sports, youth work and social services protesting under the slogan Die kuh ist noch nicht vom eis (best translated We are not out of the woods yet) against planned budget cuts of the Halle city council in Halle (Saale), Germany, on March 25, 2026.
Craig Stennett | Getty Images News | getty images
Polish Finance Minister Andrzej Domanski told CNBC that the government is monitoring “really closely” the possibility of social unrest manifesting at the ballot box, especially as the IMF has warned of a “guns versus butter” trade-off.
Domanski acknowledged that Poland’s target of spending 5% of the country’s GDP on defense is “too high.”
“But, the geopolitical situation is also serious, yes? (Russian President Vladimir) Putin is threatening us, threatening NATO, threatening some of our neighbors. Well, we need to be serious about security, and that is the top priority of our government,” Domansky said.
