Czech Budget Deficit to Increase in 2026 Due to Rising Defense Spending, Says Finance Minister#

Drivers of the Deficit Increase#

• Defense Spending Commitments: The Czech government plans to raise defense spending to 2.2% of GDP in 2026, up from 2.09% in 2024 (CZK 166.8 billion or $7.25 billion), as part of a gradual increase to 3% by 2030. This aligns with NATO commitments and addresses geopolitical tensions, including Russia’s invasion of Ukraine and potential U.S. policy shifts under President Donald Trump.LinkLinkLink
• Modernization Programs: Funds will support major acquisitions, including F-35A fighter jets, CV90 infantry fighting vehicles, Embraer C-390 transport aircraft, and Leopard 2A8 tanks, alongside infrastructure upgrades and ammunition replenishment.LinkLink
• Economic Context: Economic growth slowed to 1% in 2024, with a slight contraction in 2023, straining public finances. Austerity measures in non-defense sectors and a windfall tax on energy firms like CEZ (up 2.25% on June 30, 2025) are supporting revenue but are insufficient to offset rising defense costs.LinkLink

Fiscal and Political Challenges#

• Opposition Criticism: ANO party’s shadow finance minister, Alena Schillerová, criticized the deficit increase as a result of poor fiscal policy, while former Defense Minister Lubomír Metnar questioned the transparency of 2024 defense spending.LinkLink
• Budget Pressures: Internal disputes, such as the Army’s concerns over funding for Leopard tank acquisitions, highlight financial strain. The 2025 defense budget is set at CZK 160.8 billion (€6.6 billion), with CZK 66 billion for investments, but further increases may require budget amendments.LinkLink
• Political Context: With a general election looming in autumn 2025, Prime Minister Petr Fiala’s coalition trails ANO in polls, adding pressure to balance defense priorities with fiscal discipline.Link

Risks and Opportunities#

• Risks: The rising deficit, projected to exceed the 2025 fiscal gap of 2.5% of GDP, could strain public finances, especially if economic growth remains sluggish. Austerity in non-defense sectors may spark public backlash, and failure to secure funding for modernization could delay critical defense projects.LinkLink
• Opportunities: Increased defense spending is expected to drive innovation and economic growth through technological advancements and industrial cooperation, with contracts like the Caesar self-propelled guns and SPYDER systems involving Czech companies. A higher deficit may be justified by enhanced security and NATO compliance.LinkLink

Conclusion#

Czech Finance Minister Zbyněk Stanjura’s announcement of a CZK 280 billion budget deficit for 2026 reflects the government’s commitment to raising defense spending to 2.2% of GDP, with a long-term goal of 3% by 2030. Driven by NATO obligations and regional security threats, this increase funds critical military modernization but exacerbates fiscal pressures amid slow economic growth and political challenges. While offering opportunities for innovation and security, the growing deficit risks straining public finances and requires careful management to maintain economic stability.Link