Good for the economy: defense exports on the way to becoming a central source of funding

The defense export deal with Greece in the amount of 10 billion shekels is good news for the Israeli economy in three parameters.

The first part is the deal itself, which will generate revenue for defense companies, bringing tax income to the state treasury. The second part concerns the shekel's exchange rate: the deal will bring an inflow of foreign currency to Israel, contributing to foreign currency reserves and the strengthening of the shekel. We recall the statement of the late Governor of the Bank of Israel, Stanley Fischer, who used to say that a strong currency means a strong economy.

The complex part

The third part of the matter is much more complex, as it concerns Israel's defense budget, which is breaking records and starting to weigh on the Israeli economy and the ability to allocate budgets to civilian ministries.

In principle, the defense budget has climbed to 183 billion shekels (25 billion shekels have not yet been approved). Beyond the current budget, there is also the force buildup budget, which will stand at 350 billion shekels, to be spread over a decade, as decided by Prime Minister Benjamin Netanyahu.

The big question arising from Netanyahu's decision (a decision that will be challenged by the next government, whatever it may be) is the budgetary source of this money, since an addition of 35 billion shekels for force buildup, on top of the current defense budget, is already too much for the Israeli economy.

The defense establishment presented its own solution for financing the force buildup budget, and the program speaks of defense exports that will yield 50 billion shekels for the state. This budget will be directed toward force buildup, so that the force buildup budget finds an "internal" source, which is not the current state budget composed of tax collection and state loans.

The path to 50 billion

The question arising from the program presented by the defense establishment is: how can defense exports grow by another 50 billion net shekels in a decade? The deal with the Greek government provides the answer. One deal, with one country, yields an income of 10 billion shekels, and from here one can move forward.

European countries have decided to increase their investment in their defense budgets to an average of 1.5% of GDP, which means that in the coming decade the volume of investment by friendly countries in defense procurement from Israel will grow. Looking at the deal with the Greek government, this is the way the defense industries will be able to meet the defense establishment's program — by bringing in some of the money through defense exports.