NATO has been in the news lately when Sweden joined the allies as the 32nd member of NATO. Do you know about the funding of NATO i.e. who funds it and how?
Let’s dive in.
What Is NATO?
The North Atlantic Treaty Organisation (NATO) was founded in 1949 when the North Atlantic Treaty was signed by its founding members.
It was founded initially to counter Soviet aggression and expansion. The agreement meant an attack on one was an attack on all.
Who Funds NATO?
Today, there are 32 NATO members. Sweden is its most recent member, having joined on 7th March 2024.
NATO is funded through direct and indirect means.
Indirect Funding
“National (or indirect) contributions are the largest component of NATO funding and are borne by individual member countries. These include the forces and capabilities held by each member country, which can be provided to NATO for deterrence and defence activities and military operations.” Source: NATO
2% Guideline
In 2006, NATO Defence Ministers agreed to spend at least 2% of their GDP on defence. However, this is just a guideline.
How are the NATO countries doing on this?
The chart below shows that as of 2023, NATO estimated that less than half of all members would meet this 2% spend on their own defence for 2023.
In 2024, NATO expects 18 of its allies to at least meet the 2% guideline.
The Spend on Defence by NATO Countries
The chart below shows NATO’s 2023 estimated spend for each NATO country.
“NATO collects defence expenditure data from Allies on a regular basis and presents aggregates and subsets of this information. Each Ally’s Ministry of Defence reports current and estimated future defence expenditure according to an agreed definition of defence expenditure. The amounts represent payments by a national government actually made, or to be made, during the course of the fiscal year to meet the needs of its armed forces, those of Allies or of the Alliance.” NATO Press release Defence Expenditure of NATO Countries (2014-2023), July 2023
20% of Annual Defence Expenditure Guideline
At the Vilnius Summit in 2023, allies “pledged to invest at least 20% of their defence budgets on major equipment and related research and development.” Source: NATO Funding
How are the NATO countries doing on this pledge?
The figures in the chart below are NATO estimates for 2023.
As of 2023, NATO expected all its members, apart from Canada and Denmark, to meet this 20% guideline.
Defence Spending of the USA
Defence spending by the USA dwarfs the other allies and it has been like this since the inception of NATO in 1949.
NATO recognises this “imbalance”.
It says, “The volume of US defence expenditure represents approximately two thirds of the defence spending of the Alliance as a whole. However, this is not the amount that the United States contributes to the operational running of NATO, which is shared with all Allies according to the principle of common funding. Moreover, US defence spending also covers commitments outside the Euro-Atlantic area. It should be noted, nonetheless, that the Alliance relies on the United States for the provision of some essential capabilities, regarding for instance, intelligence, surveillance and reconnaissance; air-to-air refuelling; ballistic missile defence; and airborne electromagnetic warfare.” Source: NATO Funding
The NATO General Secretary’s Annual Report for 2023 compares the GDP of the USA vs Europe & Canada and the share of the alliance defence spending.
Direct Funding
NATO uses common funding to support its objectives.
All Allies contribute to funding NATO via cost-sharing which is based on the Gross National Income of member countries.
NATO has three principal common-funded budgets:
1. The Civil Budget provides funds for personnel, operating costs, and programme expenditures of NATO’s Headquarters and its international staff.
Its implementation is overseen by the Budget Committee.
The NATO Secretary General is the budget holder.
The civil budget for 2024 is €438.1 million.
2. The Military Budget covers the operating costs of NATO Command Structure headquarters, missions, and operations around the world.
Its implementation is overseen by the Budget Committee.
The primary military budget holders are:
– the Supreme Allied Commander Europe (SACEUR),
– the Supreme Allied Commander Transformation (SACT),
– the Director General of the International Military Staff (DGIMS).
The military budget for 2024 is €2.03 billion.
3. NATO Security Investment Programme (NSIP), supports and contributes to deterrence, defence and security.
Its implementation is overseen by the Investment Committee.
Capabilities are delivered either by individual host nations or user nations, by NATO agencies or Strategic Commands.
The NSIP budget for 2024 is €1.3 billion.
The overall budget has increased from €3.3B (’23) to €3.8B (’24), an increase of over 13% year on year.
The USA (16.2%), Germany (16.2%), the UK (11.2%), and France (10.4%) collectively provide over 50% of the funding for all 3 of these budgets. Source: NATO Funding
NATO Common Funding – Who Pays What?
Which region contributes to most to common funding?
It’s Europe.
The table below shows the percentage and monetary cost-sharing breakdown by country. This is based on Gross National Income and is agreed between the countries.
The newest member, Sweden, who joined NATO on 7th March 2024, is not included in the figures below, as the cost-sharing is currently being updated.
Europe contributes €2.9B (77%).
Figures and % are rounded.
Joint Funding
Joint funding arrangements are established based on an agreed NATO charter. Participating countries define priorities and funding structures, while NATO oversees the process.
Joint funding is suitable for long-term, subject-specific initiatives such as DIANA which is a “is a NATO body working with leading researchers and entrepreneurs across the Alliance, helping them develop technologies to keep NATO populations safe and secure.” Source: NATO, Defence Innovation Accelerator for the North Atlantic (DIANA).
Jointly funded programs cover a wide range, from fighter aircraft development to logistics support. NATO agencies coordinate efforts in areas such as research and development, standardization and intelligence-sharing.
Conclusion
NATO’s commitment to resilience and civil preparedness is rooted in Article 3 of the North Atlantic Treaty, “In order more effectively to achieve the objectives of this Treaty, the Parties, separately and jointly, by means of continuous and effective self-help and mutual aid, will maintain and develop their individual and collective capacity to resist armed attack.”
To fulfil this, each member country needs to spend on its defence and contribute directly to NATO through common and joint funding so that it is always ready to defend itself or any of its allies in the event of an attack.
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