Sweden just boosted defence spending by 18% — here’s what that means for NATO

Sweden has unveiled one of its most aggressive defence budget expansions in recent memory, announcing an 18% hike in 2026 that will lift military spending to 2.8% of gross domestic product (GDP). The new allocation adds 26.6 billion Swedish kronor (approximately US$2.87 billion) to defence, cementing the government’s intent to meet NATO’s demands for stronger collective security following its accession to the alliance in 2024.

This surge is not just a numbers exercise. It marks the first time since the Cold War that Sweden has pushed its defence expenditure so high relative to GDP, underscoring how Russia’s war in Ukraine and shifting European security dynamics have reshaped Stockholm’s long-standing posture of military restraint.

Historically, Sweden pursued a policy of neutrality and non-alignment, preferring to maintain modest levels of defence readiness. But the geopolitical shocks of the 2020s — including Moscow’s aggression and renewed NATO solidarity — have brought a decisive end to that chapter.

How does Sweden’s new defence budget compare to NATO targets and the spending levels of its European peers?

NATO currently encourages members to spend at least 2% of GDP on defence, though in practice the alliance has been pressing for closer to 3%–3.5% given the intensity of modern security challenges. With its 2026 allocation, Sweden is committing to 2.8%, already above the base requirement and firmly within the upper tier of European contributors.

By comparison, Germany is still navigating its special €100 billion “Zeitenwende” fund but remains closer to the 2% baseline, while Poland has surged ahead to nearly 4% of GDP in 2024–2025. The United Kingdom and the United States hover around 2.3–3.5%, depending on annual adjustments. Against this backdrop, Sweden’s 2.8% sets it apart as one of NATO’s more ambitious mid-sized members, despite its smaller population and economy.

Government projections indicate that Sweden intends to reach 3.1% of GDP by 2028 and may ultimately align with a 3.5% threshold. Such a trajectory would place it among NATO’s top contributors in proportional terms.

What will Sweden spend the additional 26.6 billion kronor on and which military programs will benefit most?

The 2026 increase is not purely symbolic. According to government documents, the SEK 26.6 billion will be channelled into a series of big-ticket procurement programs and structural improvements.

The priorities include advanced air defence systems, rocket artillery units, combat vehicles, and new surface combat ships to strengthen Sweden’s naval presence in the Baltic Sea. The air force will see upgrades with tactical transport aircraft acquisitions, while personnel costs are also being addressed through higher salaries and expanded recruitment incentives.

Beyond hardware, part of the budget will flow toward support infrastructure such as logistics hubs, maintenance facilities, and cyber-defence capabilities — all of which are crucial for integration with NATO’s command structures.

This multifaceted approach reflects a recognition that modern deterrence is not only about acquiring weapons platforms but also about sustaining readiness and interoperability with allies.

Why is Sweden choosing this moment to accelerate defence spending and what external pressures are driving the decision?

The most obvious catalyst is Russia’s ongoing aggression in Ukraine. Sweden, like its Nordic neighbours, views Moscow’s posture as a direct threat to stability in the Baltic region. Intelligence assessments suggest that Russia is reconstituting its armed forces despite heavy battlefield losses, and Stockholm does not want to be caught unprepared.

Sweden’s accession to NATO in 2024 also created internal obligations. As a new member, the country is expected not only to meet alliance benchmarks but also to contribute materially to collective defence missions. Political leaders have made clear that Sweden must “pull its weight” within NATO, a phrase that reflects both domestic political consensus and alliance diplomacy.

Another driver is the growing NATO footprint in the Arctic and the Baltic Sea, where Sweden occupies a geographically strategic position. From Gotland Island to air corridors over the Baltic, Swedish territory is a critical asset for deterrence against Russia. Investing in modern capabilities ensures Sweden is not merely a beneficiary of NATO protection but an active contributor to regional stability.

What are the fiscal and economic implications of Sweden’s increased military budget?

Raising defence spending by nearly 20% in a single year has material fiscal consequences. Sweden enjoys relatively low public debt compared with many EU peers, giving it some breathing space to fund new allocations without breaching fiscal discipline. However, sustaining spending at 3% of GDP or higher through 2028 will require either reprioritisation of other government programs or acceptance of higher borrowing levels.

Already in mid-2025, Parliament backed a 31 billion kronor borrowing program specifically to finance defence. This suggests that future expansions may lean on debt issuance, potentially reshaping Sweden’s fiscal trajectory. While investors have historically viewed Swedish sovereign debt as a safe haven, rising borrowing could test that reputation if global interest rates remain elevated.

Economists also note that large defence allocations can create crowding-out effects, reducing fiscal space for social programs such as healthcare and education. Yet, Sweden’s robust export-led economy, strong industrial base, and healthy credit rating provide buffers that many NATO peers lack.

How are experts and analysts reacting to Sweden’s move and what does it signal about Europe’s defence future?

Early expert sentiment frames the budget hike as both a necessary correction and a signal to allies and adversaries. Analysts highlight that Sweden is sending a message of reliability within NATO, ensuring that its Baltic Sea flank is well defended.

At the same time, some policy commentators caution that the sheer scale of the increase could strain Sweden’s procurement and industrial base. Defence manufacturers and suppliers will need to expand capacity to meet demand, and delays or cost overruns could erode political support if visible results are not achieved quickly.

Internationally, Sweden’s posture may also put pressure on other NATO members — especially in Western Europe — to accelerate their own budget commitments. The optics of a relatively small economy like Sweden committing nearly 3% of GDP could make lagging members appear less serious about collective defence.

What future developments should investors, policymakers, and NATO members watch for after Sweden’s budget increase?

Looking ahead, the execution of procurement programs will be the key determinant of success. Observers will closely watch whether Sweden can deliver new combat ships, advanced air defence, and modern artillery on schedule, and whether it can sustain recruitment and retention of military personnel.

On the industrial front, Sweden’s long-standing defence companies, such as Saab AB, stand to benefit from rising procurement, with potential export spillovers as NATO allies look to standardise platforms. This could strengthen Sweden’s defence industrial base and generate secondary economic benefits beyond the military sector.

Geopolitically, Sweden’s aggressive budget signals that Northern Europe is becoming a hotspot of military readiness. With Finland already a NATO member and Poland investing heavily, the region is emerging as one of NATO’s most militarised theatres, reshaping alliance strategy for the next decade.

Ultimately, Sweden’s defence budget surge is not only about deterring Russia today but also about building long-term resilience within NATO. By committing to levels near 3% of GDP, Stockholm is betting that a robust defence posture will deliver both security and diplomatic leverage in a volatile Europe.

Can Sweden sustain its 2.8% defence spending level and deliver results that match NATO expectations?

Sweden’s 18% increase in its 2026 defence budget marks a turning point in the country’s military and geopolitical trajectory. Raising spending to 2.8% of GDP places it among NATO’s top contributors, while charting a path toward 3.5% by the end of the decade.

The immediate payoff will be stronger deterrence, enhanced interoperability, and increased trust among allies. The long-term test will be whether Sweden can manage fiscal trade-offs, execute complex procurements, and maintain public support for sustained high defence spending.

In a Europe where security concerns dominate the political agenda, Sweden’s decision reflects both necessity and ambition — a statement that neutrality has been replaced by full NATO integration, and that Stockholm intends to be more than a passive partner in the defence of the continent.