The budget for the National Defense sector could be much larger than people say. According to the Public Finance Council’s (CFP) analysis of the State Budget proposal for 2026 (OE 2026), at first glance “defense expenditure is expected to increase by only 546 million euros in 2026, going from 3,332 million euros (1.1% of GDP – Gross Domestic Product) in 2025 to 3,878 million euros (1.2% of GDP)”. It would be little and short to, for example, comply with the agreement signed with NATO.
However, the CFP says that this budget has a reserve of 1.2 billion euros in a “financial assets” account that could be “transformed” into effective expenditure, into more salaries, purchases of goods and services, investments, etc.
If this is the case, and if the entire budget is transformed into more expenditure, the small budget surplus that the Minister of Finance, Joaquim Miranda Sarmento, projects for next year (0.1% of GDP) could be completely eclipsed, turning into a deficit of 0.3%.
The budgeted expenses, explains the Council chaired by Nazaré Costa Cabral, are not enough for Portugal to comply with the agreement it signed at the last NATO summit, in The Hague (June 2025).
According to the CFP, the public expenditure foreseen in the OE 2026 proposal for the defense sector “appears to fall short of the commitment made by Portugal within the scope of European cooperation in matters of security and defense”.
The CFP further explains that “the concept of defense expenditure accepted by NATO” and “is not limited to the area of Defense”, it also covers “expenses from other budget programs, such as expenditure on police and internal security forces, military schools, military hospitals and military pensions”.
“Although the presentation of the detailed investment plan for defense by the Government is scheduled for the end of November, it would be expected that expenditure in this area would assume a more significant expression in the OE 2026 proposal, in line with the international commitments assumed”, indicates the entity that evaluates public policies.
However, the CFP notes that “the budget of the Treasury and Finance Entity for 2026 includes, in Chapter 60 relating to exceptional expenses, an allocation of 1,200 million euros under the heading Other financial assets – Public non-financial companies and quasi-companies (non-effective expenditure) intended to finance military investments”.
It turns out that, “under the terms of paragraph 9 of article 8 of the OE 2026 Law Proposal, the Minister of Finance is authorized to make budget changes to effective and non-effective expenditure of the aforementioned Chapter 60 and to make transfers in this context between the different budget programs, so the full use of this amount next year in effective expenditure will imply an additional negative impact of 0.4% of GDP on the budget balance”.
Stability Pact provides for exception
In light of the new European budgetary rules and the Stability Pact, it was decided, at European level, that the expenditure on increasing military spending that countries “need” to make – to prepare for this new era marked by wars and conflicts (namely the threat from Russia to Europe and NATO) – does not count towards the governments’ assessment.
The CFP states that, in Portuguese net expenditure, one of the Pact’s new criteria, “despite the projected growth rate in 2025 (6.4%) and 2026 (5.7%) being above the Government’s commitment, given the flexibility provided for in the national derogation clause relating to the increase in defense investment expenditure, the accumulated deviations in the control account for 2025 (0.4% of GDP) and 2026 (0.5% of GDP) are close to, but lower than, the maximum threshold of 0.6% of GDP”.