Armenia Gambles on Peace, Plans to Slash Defense Budget

The Armenian government is signaling a significant reduction in defense spending for 2026, placing its bets on a forthcoming peace treaty with Azerbaijan to guarantee national security. Prime Minister Nikol Pashinyan has publicly stated that a substantial increase in military expenditures is unlikely, a move that starkly contrasts with the country’s recent efforts to overhaul its armed forces.

This potential pivot comes just after Armenia allocated a record sum to its defense in 2025, with the military budget soaring to over $1.7 billion, or 6.1% of its GDP. This represented a 20% increase from 2024 and was more than double the spending levels of 2020-2021. These funds were earmarked for a comprehensive rearmament program, including the acquisition of advanced air defense systems, artillery, drones, and modern communication equipment following the country’s defeat in the 2020 Nagorno-Karabakh war.

In sharp opposition to Yerevan’s pacifist rhetoric, Azerbaijan’s President Ilham Aliyev has emphasized that Baku must always be prepared for war. Aliyev has highlighted his country’s ongoing military buildup since 2020, which includes expanding its special forces by thousands, acquiring state-of-the-art drones and artillery, and signing contracts for new fighter jets. This divergence underscores a fundamental disagreement in regional strategy, with one side moving towards demilitarization and the other reinforcing its military might.

According to Hayk Khalatyan, head of the Analytical Center for Strategic Studies and Initiatives, the two nations’ positions reveal their differing approaches to the peace process. “The Armenian authorities are trying to convince their citizens that a signed treaty minimizes the risk of war, thus allowing for savings on military spending. Baku, on the contrary, is demonstrating that the option of military pressure must always remain a part of the negotiation process,” Khalatyan noted.

Internally, Armenia is also grappling with its geopolitical alignment, as evidenced by recent debates over the future of the 102nd Russian military base in Gyumri. Small, competing demonstrations were held in the city, with pro-European groups calling for the base’s removal and pro-Russian movements advocating for its retention. However, the low turnout for both rallies suggests a limited public appetite for the issue, with fewer than 300 people participating in total.

Yerevan’s potential defense cuts may be driven by necessity as much as by policy. The country is facing mounting economic headwinds, with public debt exceeding 50% of GDP and a budget deficit of 5%. The international rating agency Fitch has warned that continued growth in spending without a corresponding increase in revenue could threaten the nation’s financial stability, creating pressure to redirect funds towards social programs and infrastructure.

Ultimately, the proposed budget cuts could jeopardize the very military reforms that the Pashinyan government initiated. These crucial reforms, designed to restructure the army’s command and training methods, are still in their early stages. If defense spending is significantly reduced, these vital initiatives may stall or be abandoned altogether, potentially leaving Armenia in a vulnerable position should the hoped-for era of peace with Azerbaijan fail to materialize.