Israel's USD95B Defense Plan Risks Pushing Debt to Crisis Levels

(MENAFN) Israel is hurtling toward a precarious fiscal trajectory as the financial toll of sustained multi-front military operations and surging defense demands strain the country's public finances, according to a Tuesday report by a news agency, the English-language platform of the Yedioth Ahronoth media group.

Citing an analysis by Calcalist, the news agency reported that Prime Minister Benjamin Netanyahu's government has struggled to rein in defense expenditure following the October 7, 2023 attacks, with a proposed $95 billion defense package now fueling alarm over mounting debt and deteriorating fiscal stability.

At the center of the controversy is a classified document — Netanyahu's "Doctrine and Policy Guidelines for 2025-2026" — drafted in late 2025, which fundamentally restructured Israel's national security posture by directing the military to prepare simultaneously across multiple theaters and conflict scenarios. According to Calcalist's analysis, the document functioned in practice as an unrestricted procurement mandate, with Netanyahu reportedly greenlighting every military request submitted.

Defense officials estimated the most expansive interpretation of Netanyahu's policy directives would carry a price tag of approximately 800 billion shekels — roughly $271 billion. Two scaled-back alternatives were subsequently presented: one valued at $152.6 billion and another at $84.8 billion. After protracted negotiations between the Finance and Defense ministries, both sides settled on a $94.5 billion compromise to be spread across a decade.

A portion of the approved plan — including the procurement of two new air force squadrons — received clearance from the ministerial procurement committee on Sunday.

The report characterized the economic consequences of the plan as "dramatic," pointing to warnings already issued by Bank of Israel Governor Amir Yaron, who has cautioned that the country is on a rising debt trajectory. Factoring in the broader $118.7 billion spending framework and Israel's push to reduce reliance on US military aid, the country's debt-to-GDP ratio is projected to climb to 83% by 2035.

That projection, the report noted, rests on the assumption that the war concludes in the near term — an assumption it urged readers to treat with considerable skepticism, given that comparable expectations have gone unfulfilled since early 2024. A prolonged conflict, the analysis warned, would impose far graver costs on Israeli society, encompassing physical and psychological casualties, the economic burden of extended reserve service, and sweeping damage to both public finances and the broader economy.

Tensions between the Finance Ministry and Defense Ministry have added another layer of fiscal uncertainty. The Defense Ministry is seeking an additional 30 billion shekels for 2026 — a demand entirely separate from war-related expenditures. While the two ministries had reached a December 2025 agreement on a defense budget of $37.6 billion — plus a deferred $1.3 billion transfer — the Defense Ministry had originally pushed for nearly $48.85 billion. Since then, an additional $10.8 billion was allocated for wartime needs, with a further $2.3 billion reserve fund still pending a final decision.

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