The government isn't terrorists... yet.
Unless you sell a good deal of your weapons and use the money to combat the revolts that are rising in your country, you are going to be taken over by an Anarchist, Socialist, Communist or Stratocratic organization. Under the republic you have in place, it would be safe to assume that there is growing support for extreme liberal parties. This is how national socialist Germany was born.
Your options are to either sell weapons and combat terrorists for a long period of time to get rid of them or to change your government structure a bit. A coalition government might serve you well, but the problem with that is that the economy will grow back slowly, but it will hardly decline at all.
The problem is that you are dealing with an internal threat, while at the same time trying to increase government programs to get yourself out of a depression. You may have to borrow money from another country.
Right now, you are well on the road to collapse. In order to save yourself, you will have to sacrifice your status in the world.
Also, we'll be more than willing to purchase the Icelochian weapons and schematics from you for a generous price.