Portugal aims to reach NATO's defence spending goal without harming finances

By Sergio Goncalves

LISBON (Reuters) -Portugal is preparing a "credible" plan of gradual annual increases in defence spending to reach NATO's new target of 5% of gross domestic product by 2035 without jeopardising its finances, the country's prime minister said on Monday.

Luis Montenegro said that despite very large planned defence expenditures, he counted on the economy's ability to create more wealth and on the return from those investments to the rest of the economy.

"Portugal wants to make small annual increases that translate into a credible upward trajectory to reach the 5% target by 2035. We will manage it in an appropriate way for state budget execution", he told a conference on defence.

At a NATO summit in The Hague three weeks ago, leaders agreed to hike the alliance's defence spending target to 5% over the next decade, with 3.5% dedicated to core defence and 1.5% to dual-use investments, such as infrastructure.

The objective will be reassessed in 2029.

Montenegro said Portugal and Europe "need to increase their capabilities and Europe needs more strategic autonomy".

Portugal needs to boost its maritime and air capacity as it has a huge coastline and one of the largest exclusive economic zones in the world, he said.

The Portuguese government said a month ago that it would increase its defence spending to 2% of GDP this year, four years ahead of schedule.

"The objective is ambitious, but it's more ambitious in its material execution than in its financial execution", Montenegro said.

Among the 32 NATO members, Portugal is one of the countries with the lowest defence spending as a share of economic output. The government estimated that it stood at 4.48 billion euros in 2024, or 1.58% of GDP.

Portugal has committed to maintaining budget surpluses in each of the next four years and cutting its public debt ratio, after having a surplus of 0.7% of GDP in 2024.

(Reporting by Sergio Goncalves; Editing by David Gregorio)