2026 Perspectives for the Public Sector

Given the size and volume of current defense contracts, governments could benefit from diversifying their funding sources, with Export Credit Agency (ECA) financing providing a solid alternative to expand debt capacity and offer long-term repayment profiles . Banks and financial institutions that engage with the defense sector must navigate their own set of obstacles. These include regulatory and compliance challenges, such as adhering to International Traffic in Arms Regulations (ITAR), EU Dual-Use regulations, and Countering America’s Adversaries Through Sanctions Act (CAATSA) sanctions, which can restrict the transfer of sensitive technologies. Anti-money-laundering requirements increase scrutiny of intermediary transactions. Reputational and environmental, social, and governance pressures remain a factor, with some investment funds excluding defense entirely — although governance-focused funds are beginning to grow in prominence. Financial and geopolitical risks, including the potential for defaults, collateral complications, and market volatility, also act as deterrents to lending. Despite these challenges, private investment remains critical to the modernization of global defense capabilities. In today’s geopolitical climate, nations have little choice but to strengthen their defenses to effectively manage risks and prepare for future crises. Ensuring governments possess the right capabilities to protect public interests will require close collaboration with private partners — bringing not only the innovations needed to counter both emerging and established threats, but also the financing to make these advancements possible. Such partnerships must be well-structured, striking the right balance between strategic priorities, transparency, and public accountability in a time of heightened risk and uncertainty. By aligning public objectives with private-sector expertise, cooperation can unlock large-scale, long- term financing solutions to meet the complex security challenges of the modern era. Citi Perspectives for the Public Sector 11