Czech Republic to Hit NATO Defence Spending Target, Budget Gap Widens

The Czech Finance Ministry has unveiled a proposal to widen the country's budget deficit to 389 billion crowns ($18.71 billion) for 2027, up from the 310 billion crowns planned for the current year. Finance Minister Alena Schillerova announced the plan on Monday, outlining a significant increase in core defence spending to 191 billion crowns.

This allocation would bring Czech defence expenditure to the NATO target of 2.0% of gross domestic product (GDP) for the first time in many years. The increased spending also covers road and rail investments, healthcare, and public sector wages.

Schillerova stated that the public sector deficit is projected to be 2.8% of GDP next year, following a 2.7% forecast for this year and 2.1% in 2025, before the current government assumed office. She emphasised that the country's deficits would remain well below the EU average and those of its central European peers, with a plan to begin reducing them from 2028.

The government, led by Prime Minister Andrej Babis' ANO party, has relaxed spending legislation, arguing that the previous cabinet left gaps in financing key policies. Schillerova warned that lowering the deficit next year would "catch Czechia in a trap of unfinished construction projects, inaccessible healthcare and economic stagnation."

This move comes despite the Czech Republic previously ranking last among NATO members for defence spending, even as the security threat from Russia has risen. The Babis government had earlier cut the core defence allocation prepared by the previous cabinet to slightly above 1.7% of GDP.

NATO has urged members to raise core defence spending to 3.5% of GDP and overall defence-related outlays to 5.0% by 2035, with several members already exceeding the 2% threshold. The Czech Finance Ministry had earlier forecast government debt to reach 45.8% of GDP by the end of 2026, a figure that remains far below the EU average.