Linas Jegelevičius
Lithuania’s State Defence Council (VGT), which includes the country’s top political and military leaders, has committed to significantly increasing military spending. Over the next five years, the government plans to allocate between 5% and 6% of GDP to defence, a sharp rise from the current level, of approximately 3.2% of GDP. But is this feasible?
“It may be doable, but at whose expense? Will it come at the cost of health, education, and social security?
Most importantly, I haven’t heard what exactly will be done with the money. And will the five percent significantly ramp up our defence?” Sigitas Besagirskas, a Lithuanian entrepreneur, and economist by profession, told BNN.
This year’s state budget initially earmarked around 2.5 billion euros for defence, just over 3% of GDP. However, the new Government has raised the 2025 borrowing limit by 800 million euros, which could push military spending to 4% of GDP.
“No other European nation, except Poland, allocates such large funding for its defence. Only wartime countries allocate that much, and the guarantees that we would properly defend ourselves if a contingency arises are, to say the least, unclear,” S. Besagirskas emphasized.
Defence officials estimate that at current funding levels, Lithuania’s military division would reach full operational capacity by 2036–2040 instead of the planned 2030.
Nausėda has previously stated that bringing this timeline forward would require an additional 10–14 billion euros in defence funding beyond what is already projected.
“I am afraid that the 5% commitment can ruin our economy. It will certainly be a burden for our people, demotivating all, especially young people,” S. Besagirskas predicts.
Agreeing, Kestutis Girnius, a prominent Lithuanian analyst of American descent, says that increasing military spending would be a “huge mistake.”
“Despite our relative achievements, we remain a relatively not very rich country with limited resources and deepening issues in social, educational, and healthcare sectors. If we allocate more than three percent for our defence, all areas will suffer to some extent,” K. Girnius told BNN.
“Unlike many others, I am convinced that Russia will not attack us. Not because it harbours good intentions toward us, but because it is too weakened by its war in Ukraine. If Russia has failed to conquer Donetsk in Ukraine over nearly three years, it simply cannot afford to occupy Warsaw or Berlin,” K. Girnius added.
In his words, raising the defence budget to 5% or 6% would inevitably lead to the impoverishment of many Lithuanians.
“With this move, Lithuania is certainly trying to please U.S. President Trump, but it may fail, as there are many more things that could irritate Mr. Trump than please him,” the analyst underscored.
President Nausėda has ruled out major tax increases to meet these new spending goals, insisting that additional funding will come from borrowing and budget cuts rather than higher taxes.
“I would very much prefer not [to raise taxes], and I think we will certainly not go down this road where more funding for national defence is linked to a higher tax burden on the population. We must avoid this,” he stated, LRT.lt reported.
However, financial experts warn that this approach may not be sustainable in the long run.
Gintaras Juškauskas, a tax expert at Mokesčių Sufleris (Tax Prompter), argues that borrowing will inevitably lead to tax increases.
“A government that sends the message ‘we will borrow’ should also send the message ‘we will raise taxes.’ The question is, of course, whether this government will raise taxes, because public debt will have to be repaid from somewhere. There is simply no other way, no sustainable way, to repay the loans than by raising taxes,” he told LRT.
Former Finance Minister Vilius Šapoka agrees, saying that expecting the European Union to cover Lithuania’s defence bills is unrealistic.
“Let’s not pretend that it should be paid by someone else – the European Union or only by the rich, or only by businesses. This is a common cause and therefore everyone’s contribution and involvement is crucial. That is why horizontal taxes should be used: VAT, pollution taxes, a sugar tax could be considered,” said Šapoka, now a Strategic Management Partner at business consulting firm Insynergy4, LRT.lt reported.
To secure more funds, Nausėda is scrambling to propose legislative amendments to increase the share of profit that the Bank of Lithuania transfers to the state budget.
It was agreed to prepare amendments to the Law on the Bank of Lithuania and adjust the formula used to calculate the Bank of Lithuania’s profit contribution to the state budget. However, the exact figures are yet to be finalized.
What are other potential sources of defence funding?
As Lithuania’s official reserve assets exceed seven billion euros, nearly half of which consists of debt securities, Nausėda suggests these reserves could be tapped for defence funding.
One idea being considered is allowing residents to keep part of their savings in special government-backed accounts that would remain accessible but contribute to national defence.
There are also proposals to empower the State Tax Inspectorate to collect more unpaid taxes.
Besides, the Lithuanian government is looking to negotiate an exception with the European Commission to exceed the 3% GDP budget deficit limit set by the Maastricht Treaty.
Finance Minister Rimantas Šadžius acknowledged that Lithuania risks exceeding this limit but argues that future revenue measures could compensate for temporary deficits.
Lithuania’s ambitious defence spending plan aims to strengthen national security and accelerate military readiness, but it raises serious economic and financial questions.
While the government is committed to avoiding tax hikes, experts warn that borrowing alone is unsustainable. The coming months will determine whether alternative funding strategies, EU negotiations, and defence industry investments can bridge the gap without creating long-term financial strain.