Members of Houthi security forces stand guard against supporters of Yemen’s Houthi movement as they attend a rally to commemorate the 11th anniversary of the military operation launched by the Saudi-led coalition in Sanaa, Yemen, on March 26, 2026.
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As we usher in a new era of increased defense spending, governments are expected to face tough choices about debt and public spending, with the International Monetary Fund warning that a “guns and butter” trade-off is emerging.
The so-called “guns versus butter” dilemma refers to the trade-offs governments face when allocating resources between defense spending and social programs.
About half of the world’s countries have increased their military budgets, the IMF said in its latest World Economic Outlook, noting that arms sales by the world’s biggest defense companies have doubled in real terms over the past two decades.
The IMF said this trend is likely to continue amid rising geopolitical tensions, raising serious questions about whether increases in defense spending could crowd out other spending, such as social spending.
Citing an analysis of the experiences of 164 countries since the end of World War II, the IMF warned that history shows that booms in defense spending generally weaken fiscal and external balances and tend to be followed by sharp increases in public debt and deep cuts in social spending.
France’s Finance Minister Roland Roussucre acknowledged that the trade-off between defense and social spending poses a risk of backlash for the government ahead of the 2027 presidential election.
However, he stressed that increased defense spending could yield a “double dividend” of strengthening sovereignty and increasing domestic employment.
“We have to rethink war. Obviously, drones and new forms of warfare are emerging, 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’s spring meetings in Washington this week.
“I don’t think there is a lack of social spending in France. I think we have the highest level of spending. And this is a good thing. This is our model,” Lescure said.
“If defense spending is also an industrial strategy to create jobs, including in areas where people feel disenfranchised by globalization, and people feel left out of the larger movement towards digital innovation, then there is a double dividend of defense spending: not just more sovereignty, but more jobs,” he continued.
“If we don’t… there will be a backlash. We don’t want that.”
“Faith in the system”
World Bank President Ajay Banga said that while funding for overseas development is shrinking across developed countries, defense spending has become a clear priority for many countries.
“On the other hand, even at that time last year, IDA21, which is some of the banks for the poorest countries, raised record amounts,” Banga told CNBC on Wednesday.
The International Development Association’s (IDA) 21st round of funding secured an additional $24 billion at the end of 2024, leveraging leverage to bring the funding to $100 billion. These funds will be used to support 78 of the world’s low-income countries and enable investment in areas such as health, education and climate resilience.
“So I still believe in this system. We have to appeal to the contributing countries why this is in their interest,” Banga said.
“Why is it in the interest of taxpayers in developed countries to invest in job creation for young people in developing countries? And mainly because you get a better middle class in developing countries, you get better growth. Then your company, your intellectual property, your products, your jobs will benefit.”
“But it also gives us a more stable economic system, less illegal immigration, and better opportunities for young people. Both the positives and the negatives are important.”
Polish Minister: “We need to take security seriously”
The European Union has recently identified security and defense as a top priority, in part due to Russia’s continued invasion of Ukraine.
Defense spending across the 27-nation bloc is expected to reach 381 billion euros ($448.8 billion) in 2025, reflecting an 11% year-over-year increase and nearly 63% increase from 2020.
Meanwhile, according to the European Union Institute for Security Studies, a US-Israel war on Iran would complicate both the bloc’s rearmament efforts and support for Ukraine, while further undermining US credibility as a reliable guarantor of European defense.
A speaker addresses a crowd of numerous representatives of culture, sport, youth activities and social welfare organizations and individuals protesting under the slogan “Die Kuh ist noch nicht vom Ais” (best translated as “We’re not out of the woods yet”) against Halle City Council’s budget cuts plans in Halle (Saale), Germany, on March 25, 2026.
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Poland’s Finance Minister Andrzej Domanski told CNBC that the government is monitoring “very closely” the possibility of civil unrest at the polling stations, especially as the IMF warns of a “guns and butter” trade-off.
Domanski acknowledged that Poland’s goal of spending 5% of its gross domestic product on defense is “huge.”
“But the geopolitical situation is also serious, right? (Russian President Vladimir) Putin is threatening us, threatening NATO, threatening some of our neighbors. Well, we need to get serious about security, and this is our government’s top priority,” Domansky said.
