Israel's Arms Industry Sees Surge in Orders From Defense Budget Boost

Treasury, Defense Ministry due to begin talks on NIS 5 billion addition over three years

A missile created by Israel's Rafael Advanced Defense Systems.
Rafael Advanced Defense Systems

Israel’s defense industry is counting on a big boost in domestic arms spending by the army as defense and finance ministry officials begin talks on a 5 billion shekel ($1.4 billion) budget supplement over the next three years.

Defense Minister Avigdor Lieberman has been demanding the extra spending to enable the Israel Defense Forces to cope with changing regional military challenges. The extra money would go exclusively for weapons procurement, not for pensions or other budgets, marking a major increase in the 11 billion shekels now budgeted annually.

Of that, 3.8 billion goes to procurement for land forces, 2.3 billion for communications and intelligence, 1.8 billion for logistics, 1.6 billion on services and 1.1 billion on air and naval forces.

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The defense industry, which includes state-owned and private sector companies have not stood on the sidelines while the discussions between government officials gets underway. Lieberman has already discussed with industry executives the needs of the defense establishment and the costs involved and the latter have made clear that those will involve extra allocations.

Defense industry officials will be explaining to their treasury counterparts that Israel needs to develop a response to the growing sophistication and accuracy of Iranian and Hezbollah missiles and drones based in Syria and Lebanon.

Defense Minister Avigdor Lieberman visiting a factory of Elbit, the defense electronics company.
\ Eliyahu Hershkovitz

Lieberman’s spokesman declined to comment.

In particular, they will point to the Iranian drone that was downed by the air force after it infiltrated Israeli airspace in February. Last week, the army said the drone was armed with explosives and on its way to carry out an attack. As part of the defense establishment’s drive to emphasize the threat, it has allowed the pilot who brought down the drone to be interviewed by the media.

For their part, treasury officials are objecting to the supplement on the grounds that it violates the terms of the so-called Kahlon-Yaalon agreement. That was a 2015 accord signed by Finance Minister Moshe Kahlon and then-Defense Minister Moshe Yaalon setting out a five-year trajectory for defense budgets, including pensions and pay.

However, Prime Minister Benjamin Netanyahu is in agreement with Lieberman about the need for the supplement. As a result, the treasury will probably have to back down, even if it finds a formula that enables it to say that the Kahlon-Yaalon agreement hasn’t been violated by terming the Iran threat a fundamental change in Israel’s security situation.

Alongside the discussions on the defense spending supplement, Shai Babad, the treasury’s director general, will also hold talks with his Defense Ministry counterpart, Udi Adam, on the timing for putting the Kahlon-Yaalon agreement into effect.

Defense officials are expected to present figures showing that in 2015-17, spending for the average pension fell 10% to 18,000 shekels last year. That should buttress the case for the budget supplement, treasury sources said.