The 1949 Externer Link: North Atlantic Treaty establishes only one designated body, the Externer Link: North Atlantic Council (NAC), and grants it the powers necessary to implement the treaty. Otherwise, the treaty contains almost nothing of material relevance to NATO’s governance and funding. The NAC defines the terms of reference for all of NATO’s political and military entities. It approves their leadership, personnel, and budgets. The funding process is managed by a Externer Link: Resource Policy and Planning Board and implemented by two committees—the Budget Committee and the Investment Committee—each with representatives from all NATO member countries. The NAC supervises this process.
NATO distinguishes between direct and indirect funding, although the reality is fuzzier. The direct costs of running NATO and implementing its policies and activities are officially met in two ways: contributions to a common funding pool and jointly funded projects, whereby the participating countries identify the requirements, priorities, and funding arrangements, and NATO oversees the political and financial aspects. Some contributions to projects can be ‘in-kind’ or through NATO trust funds. For example, the United Kingdom makes an in-kind contribution to the fleet of 14 Airborne Warning & Control System (AWACS) aircraft based at Geilenkirchen, Germany—one of the few military assets that is owned and operated by NATO—by making its nationally funded AWACS aircraft available to NATO. Trust funds are initiated by NATO member states or partner countries and funded voluntarily. They are often used to support projects in partner countries, such as NATO's Comprehensive Assistance Package Trust Fund for Ukraine, under which umbrella NATO provides so called ‘non-lethal assistance’ like medical supplies, military clothing, fuel, and communication equipment.
NATO member states also contribute indirectly to collective defence commitments through their national defence budgets and participation in NATO-led operations. Although NATO treats the latter as indirect costs, they have much in common with joint funding arrangements (that are treated as direct costs) since they are established within an agreed NATO framework that includes operational command and political oversight. Moreover, some operational costs are eligible for common funding.
The Common Funding Arrangements
Direct contributions are made to finance requirements of the alliance that serve the interests of all 32 members, such as NATO-wide air defence or command and control systems. Costs are borne collectively, often using the principle of common funding whereby all members contribute according to an agreed Externer Link: cost-share formula based on Gross National Income. In 2019, the NAC agreed on a Externer Link: new cost-share formula for 2021 to 2024, which increased the shares attributed to most European NATO members and Canada and decreased the share of the United States. Reflecting U.S. pressure for fairer ‘burden-sharing’, the U.S. contribution was reduced from around 22 percent in 2019 to around 16 percent of the total. Since the accession of Sweden in March 2024, the United States and Germany have the same cost-share amount of 15.88 percent.
Common funding arrangements finance NATO’s three principal budgets: the civil budget, the military budget, and the NATO Security Investment Programme.
Civil Budget
The civil budget provides funds for personnel and operating costs as well as capital and programme expenditures of the approximately 1,000 civilians that make up the International Staff at NATO Headquarters in Brussels. This funding supports consultations and political decision-making and is focused around eight divisions within the International Staff covering policy issues such as intelligence sharing, emerging security challenges, defence policy, planning, and public diplomacy. The budget is approved by the NAC, which ensures that it reflects strategic priorities and is financed–in most countries–from national foreign ministry budgets and implemented by the Budget Committee. The civil budget for 2024 is 438.1 million euros. This budget increased by 18.2 percent compared to 2023.
Military Budget
The military budget funds the NATO Command Structure, which comprises over 50 separate budgets and includes the Externer Link: International Military Staff, AWACS, alliance operations and missions, and some training and exercises. These are financed with contributions from national defence budgets, and the Budget Committee oversees them. The Externer Link: Supreme Allied Commander Europe (SACEUR), the Externer Link: Supreme Allied Commander Transformation (SACT), and the Externer Link: Director General of the International Military Staff (DGIMS) implement the military budget. In all cases, however, providing military staff is a nationally-funded responsibility. The military budget for 2024 is 2.03 billion euros. This budget increased by 12 percent compared to 2023.
NATO Security Investment Programme
The NATO Security Investment Programme (NSIP) finances construction, command, and control system investments by NATO that are considered ‘over and above’ what could reasonably be expected to be funded from national budgets. The NSIP includes infrastructure projects at Airbases in Aviano, Italy, and Ramstein, Germany, and NATO pipeline systems for reliable military fuel provision in central and northern Europe, Italy, Greece, and Turkey, although operation and maintenance costs of such facilities remain a national responsibility. The NSIP budget decisions are based on consensus decision-making within the NATO defence planning process and require NAC approval. They are financed by the ministries of defence of each member country. Two notable recent NSIP infrastructure projects are a military equipment and munitions storage site in Powidz in Poland (285 million U.S. dollar) and port infrastructure upgrades at Naval Station Rota in Spain (190 million U.S. dollar). NATO’s Investment Committee provides supervision and projects are implemented either by individual host countries or by different NATO agencies and Strategic Commands, according to their area of expertise. The 2024 ceiling for the NSIP is 1.3 billion euros, representing a 30 percent increase over 2023.
Financial Transparency and Accountability
Before 2015, the NATO website only provided some background on the budgetary process, but the actual budget amounts and respective member state contributions were unavailable. This changed in 2015, and since then, both the NATO website and the NATO Secretary General’s Annual Report have provided headline figures for the three NATO budgets . At the Madrid Summit in 2022, NATO member states agreed to invest more together in response to the increase of global competition and threats to Euro-Atlantic security due to Russia’s war against Ukraine.
Financial transparency and accountability within NATO remains a work in progress. An independent Externer Link: International Board of Auditors for NATO (IBAN) is responsible for looking over the accounts of the NATO bodies. IBAN reports are available to the public via the Externer Link: NATO website. In addition, the management of common-funded NATO resources is undertaken by Externer Link: NATO’s Resource Policy and Planning Board (RPPB) –a subsidiary body of the NAC. At the NATO Wales Summit in 2014, following Externer Link: criticism in particular from the Netherlands Court of Audit (NCA)– the official auditing body of the Dutch government–NATO leaders charged the organisation with improving financial transparency and accountability and reporting back progress at the next summit.
Another small but tangible change is that NATO’s RPPB, for the first time in 2015, publicly released a five-page executive summary of its Externer Link: 2015 Annual Report and did so again for the Externer Link: 2017 Annual Report–but has not done so since. This report assesses the performance of military common funding within NATO. However, little, if any, has been reported on financial transparency at recent NATO summits. NATO does not publish an annual budget or financial report, as is routinely done by a growing number of other inter-governmental organisations, such as the European Union and the World Bank. Hence, NATO’s limited financial transparency continues to make it challenging to ensure that NATO-related spending–by both member states and collectively–is efficient and effective.
Jointly Funded Programmes
Jointly funded programmes in NATO are multi-faceted: They vary in the participating countries and cost distribution. They range from developing fighter aircraft or helicopters to providing logistics support or air defence communication and information systems. Jointly funded programmes create different management organisations or agencies within NATO.
For example, the fleet of NATO AWACS aircraft is managed by NAPMO (Externer Link: NATO's Airborne Early Warning and Control Capability Programme Management Organisation), which is directly responsible to the NAC. 16 NATO countries
Two of the most recent joint funding initiatives are the Externer Link: Defence Innovation Accelerator for the North Atlantic (DIANA), which aims to foster transatlantic cooperation on critical technologies, and the NATO Innovation Fund, a one billion euro venture capital fund to develop critical dual-use emerging and disruptive technologies.
National Defence Budgets and the Defence Investment Pledge
The NATO common budgets are relatively small compared to most individual member states’ national defence budgets. For example, Germany’s military budget for 2024 is about 52 billion euros. In addition to covering, where appropriate, all three categories of direct costs of funding NATO described above, national defence budgets typically include the following expenditures:
Personnel expenses, including pensions
Research, development, and procurement of military equipment
Operations, exercises, and maintenance of equipment.
The size and make-up of each national defence budget is a sovereign decision within each member state. However, since NATO member states are committed to the alliance’s collective defence, there is an implicit understanding that this mutual commitment should be reflected in national defence budgets. The principle that members contribute to providing the capabilities needed to undertake the tasks agreed in NATO is at the heart of a long-standing ‘burden sharing’ debate within NATO. The United States, in particular, has complained over many years that some member states do not pull their weight in shouldering the financial costs of collective security.
Hence, in 2006, NATO member states agreed on voluntary targets for defence spending: Two percent of Gross Domestic Product (GDP) to be allocated to defence expenditures, while 20 percent of those expenditures were to be dedicated to research, development, and acquisition of major defence equipment. The NATO members agreed at the NATO Summit in Wales in 2014 to further balance the sharing of the costs of common defence. In a defence investment pledge, NATO member states declared that the countries meeting the targets would continue to do so and that the others would aim to do so within a decade.
NATO cannot enforce these targets nor dictate how the two percent is calculated in the national budgets. In practice, the relevance of the two percent target largely depends on a small number of member states—the top eight spenders (excluding the United States): Germany, United Kingdom, France, Italy, Poland, Canada, Netherlands, and Türkiye—whose increase in military spending would have a meaningful impact on NATO’s military capabilities.
At the Externer Link: Vilnius Summit in July 2023, the 2014 investment pledge was tweaked to make NATO’s military spending of two percent of GDP a minimum requirement instead of a goal a member state must reach. Externer Link: NATO expenditure data showed that military spending among its members was expected to increase by 8.3 percent in real terms in 2023, the highest growth rate in nine successive years of growth. Eleven countries are projected to exceed the two percent of GDP target, led by Poland at 3.9 percent and the United States at 3.49 percent, with Germany expected to spend 1.57 percent–although since then, Externer Link: Germany has announced a special defence fund that is expected to increase spending to two percent in 2024. Since 2014, according to NATO the Externer Link: European member states and Canada have spent nearly half a trillion U.S. dollars extra on defence. According to NATO, 23 member states will meet the two percent target in 2024.
Participation in NATO-led Operations or Missions
NATO member states are not obligated to contribute to an operation or mission. Since NATO does not have its own armed forces, member states commit troops and equipment voluntarily under a ‘costs lie where they lie’ process. This means that if a country sends ten soldiers to a NATO mission, it only pays for ten, while if it sends 500, it pays for 500. It also means, of course, that if a state supplies no soldiers, it makes no financial contribution here. Contributions can also include any kind of military equipment from national military capabilities such as armoured vehicles, helicopters, and naval vessels or support services such as medical services.
These contributions, both personnel and equipment, are used to form a combined NATO capability, with each member state covering the costs associated with their own deployments. For example, the German Federal Ministry of Defence bears the costs of Externer Link: German military personnel in the NATO-led Kosovo Force (KFOR), an international peacekeeping mission in Kosovo since June 1999.