Israeli Government Approves Massive 2026 Defense Budget Amid Financial and Operational Strains
The Israeli government plans to inject an additional 40 billion shekels into the defense budget, raising the 2026 allocation to 184 billion shekels, the second-largest ever after 188 billion shekels in 2024. This decision follows months of delays and deep mistrust between the Defense Ministry and the Finance Ministry, culminating in an agreement last week between Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich. The Finance Ministry will immediately transfer 15 billion shekels, with a further 25 billion shekels to be decided by year-end, pending verification of the military's budget forecasts.
The Finance Ministry views the defense budget as a black hole with lost control, criticizing Defense Ministry Director Amir Baram's management and warning that ongoing financial mismanagement threatens Israel's economic future. Meanwhile, the defense establishment urgently needs funds to replenish depleted munitions stocks, cover combat expenses, and maintain border readiness. The additional funds will also help reduce the Defense Ministry's 15.5 billion shekel debt to the three largest defense industries: Israel Aerospace Industries, Rafael, and Elbit Systems.
Defense industry leaders have expressed frustration over the Defense Ministry's attempt to label their debts as "Israel's debt," emphasizing that contracts are signed with the Defense Ministry, not the Finance Ministry. The debt has already caused cash flow problems, with Israel Aerospace Industries reporting a negative cash flow of approximately $795 million in Q2 despite a 35% revenue increase and a record $35 billion order backlog. Efforts to have the government cover financing costs of about one billion shekels have so far failed.
The budget increase also aims to accelerate multi-year procurement programs worth 350-400 billion shekels, preparing for the potential end of U.S. military aid in 2028, which currently amounts to about $3.8 billion annually. The government is expected to authorize long-term commitments allowing defense purchases from 2027 onward, including orders for Apache and CH-53K helicopters, advanced munitions, unmanned border vehicles, remote-operated naval vessels, and additional F-15IA and F-35 fighter squadrons. Delays risk Israel losing production slots in U.S. defense factories to other countries, potentially postponing aircraft and helicopter deliveries by years.
The recent arrival of Israel's second Boeing refueling aircraft, ordered four and a half years ago, underscores the high cost of procurement delays in a global arms market with fully booked production lines stretching years ahead.
