Chief Economists Outlook May 2025

23Chief Economists Outlook Figure 22. Defence spending How will countries finance increasing public defence budgets? Increased public borrowing Reduced other spending on public investment Reduced other spending on public services Increased taxes 3 31 42 253 31 19 4725 17 3 563 11 61 25 Share of respondents (%)Highly unlikely Unlikely Neither likely nor unlikely Likely Highly likely Source: Chief Economists Survey. (2025, April). Any increase in debt levels as a result of geopolitical developments has the potential to trigger further adverse outcomes. Debt levels have already been on an upward trajectory, causing interest payments to soar and squeezing public budgets.56 These pressures look destined to increase further, and S&P Global expects sovereigns’ long-term borrowing to reach $12.3 trillion in 2025.57 Almost three-quarters of chief economists surveyed agree or strongly agree that debt sustainability will be a growing concern in both advanced (74%) and developing (74%) economies this year. This parity between the debt sustainability outlooks for advanced and developing economies marks a shift from the results of a similar question in a previous survey, when advanced economies were seen as less exposed. In August 2024, 64% of respondents saw sovereign debt levels as a threat to macroeconomic stability in emerging and developing economies while only 53% shared this view for advanced economies.Against a global backdrop of strained public budgets, boosting military spending is likely to require difficult policy choices. Most chief economists surveyed expect public borrowing to increase (86%) while more than half (56%) expect that other public investment will decline, and nearly half (47%) expect that spending on public services will decline. Tax increases (25% of respondents) were seen to be the least likely means of financing increasing public defence budgets. 56 United Nations Trade and Development (UNCTAD). (2025b). 57 S&P Global. (2025b).