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IDF should not get a 'blank cheque,' says Bank of Israel governor

May 30, 2024 at 1:10 pm

Amir Yaron, governor of the Bank of Israel, speaks during an interest rates news conference in Jerusalem, Israel, on 27 November, 2023. [Kobi Wolf/Bloomberg via Getty Images]

Bank of Israel Governor Amir Yaron has today backed the establishment of a committee to examine Israel’s defence budget, saying that the ongoing war does not necessitate a “blank cheque” to the Israel Defence Forces (IDF), Reuters has reported.

Yaron has been urging such a step since January, when Israeli lawmakers approved an amended wartime budget that added tens of billions of shekels to finance the war in Gaza and fighting on the Lebanese front, now in its eighth month. He has long called on the government to make fiscal adjustments to prevent the budget deficit from spiralling out of control due to the spike in defence and other war costs.

“A prosperous economy requires security, and security requires a prosperous economy,” the bank governor told a conference at the College of Management Academic Studies. “Therefore, the war should not bring with it a blank cheque for permanent defence expenditures, and proper balances have to be found.”

According to Yaron, the committee should have been set up at the start of the year since the war looks to cost 250 billion shekels between 2023 and 2025. “This is certainly a budgetary burden. In addition, the future defence budget is expected to grow on a permanent basis, with macroeconomic impact. The committee should examine these processes from an overall multi-year perspective, with an ongoing requirement for the defence system to increase efficiency.”

Prime Minister Benjamin Netanyahu has said that Israel’s defence spending as a percentage of gross domestic product has fallen in recent years, and that this would now change with a boost of 20 billion shekels ($5.4bn) a year in additional outlays.

With the budget deficit at 7 per cent of GDP in April, above a 6.6 per cent target for 2024, and rating agencies cutting Israel’s credit rating, Finance Minister Bezalel Smotrich had sought a panel to monitor defence spending. However, this was opposed by Defence Minister Yoav Gallant until the two on Wednesday agreed to form a committee, according to Smotrich.

The defence budget spat — including Smotrich seeking a review of US fighter jet purchases — fuelled already high tensions within Netanyahu’s cabinet, which has been strained by divisions over the handling of the Gaza war. Smotrich is not in the same party as Netanyahu and Gallant.

The far-right minister said that the Hamas attack on Israel on 7 October and the subsequent Israeli offensive in Gaza undermined many basic assumptions of how the defence budget was managed. As such, he added, defence spending needs to adapt to current threats, while maintaining a balance between security and the economy as a whole.

Defence Minister Gallant was not available for comment, said Reuters.

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