Israel To Boost Budget By $12.5 Billion For Iran And Gaza Wars
The funding will come on top of this year's 110-billion-shekel defence budget — already one of the world's highest relative to GDP — that was approved in late March.
Israel will boost defence expenditure by 42 billion shekels ($12.5 billion) over the next two years to meet the costs of last month’s war with Iran and the ongoing conflict in Gaza.
The increase, announced by the Israeli finance and defence ministries in a joint statement on Thursday, is equivalent to roughly 2% of gross domestic product and underlines the fiscal impact of the country’s multi-front war since late 2023.
The funding will come on top of this year’s 110 billion-shekel defence budget — already one of the world’s highest relative to GDP — that was approved in late March.
The agreement between the two ministries will allow for the signing of “urgent, substantial procurement contracts for the sake of Israel’s national security,” according to the statement.
As part of the decision, the Defense Ministry announced it had signed a large-scale contract for a to buy more Arrow interceptor missiles. Those, costing $2 million to $3 million each, were used in large numbers to intercept the roughly 500 ballistic missiles Iran fired at Israel last month.
The joint statement did not specify how the extra 42 billion shekels would be divided between this year and next.
The Finance Ministry recently told reporters that the 2025 target budget deficit — now set at 4.9% of GDP — would likely remain unchanged even with additional defence spending. That would be because of higher state revenues than initially forecast, the ministry said.
“We’re faced with complex challenges, in close and distant arenas, against enemies who openly vow to destroy us,” Defence Minister Israel Katz said on Thursday. “To meet them military, technological, and operational superiority is a must.”
Finance Minister Bezalel Smotrich said he would ensure Israel “is prepared to face any challenge with a strong economic backbone.”
Wars against Iran, Hamas in Gaza and Hezbollah in Lebanon, as well as air strikes on Syria, have costs Israel tens of billions of dollars in the past 21 months.
The $540 billion economy grew just 1% last year, the slowest pace in over two decades, excluding the Covid-19 pandemic. At the same time, government spending and borrowing surged.
Israel’s military spending rose to $47 billion, up 65% from 2023, according to the Stockholm International Peace Research Institute. That’s the equivalent of around 8% of GDP.
The central bank has urged the government to focus on reducing defence spending in the medium- to long-term and prioritizing expenditure that will boost the economy.
Still, for all the financial strains it faces, Israel has seen heavy buying of its stocks and fixed-income securities by global investors this year. The main equity gauge is up 36% in dollar terms, while shekel bonds have also jumped in value. That largely reflects investors’ belief that Israel has improved its security by weakening Iran and the Islamic Republic’s proxy militias.
The 12-day conflict with Iran largely shut down the Israeli economy and caused billions of dollars-worth of damage to infrastructure such as houses and an oil refinery.
Operations in Gaza were scaled up in May after a ceasefire between Israel and Hamas collapsed. Israel has since taken over around 75% of the Palestinian territory to try to prevent Hamas from re-grouping. That has required calling up thousands of reserve soldiers, increasing the toll on the government’s budget.
