Israel's Government Debt Soars to $375 Billion Amid Wars and Spending
Israel's government debt has surged by approximately 35% over the past three years, adding about 360 billion shekels to reach an estimated 1.4 trillion shekels by the end of 2025. Concurrently, the public debt-to-GDP ratio is projected to rise from around 60% at the start of 2023 to 68.5% by the end of 2025. This sharp increase is attributed to the significant rise in defense expenditures necessitated by the wars in Gaza, Lebanon, and Iran, as well as the aftermath of the October 7th attacks, which included civilian evacuations and compensation.
To finance the growing deficit, the government has increased its debt issuances. The article also points to what it describes as "wasteful management" by the state and the government's insistence on allocating substantial coalition payments as contributing factors. Beyond the measurable financial debt, the report highlights significant actuarial deficits in future pension and national insurance payments, estimated at over 1.5 trillion shekels, which are not included in the official debt figures.
The financial debt of 1.4 trillion shekels primarily consists of funds borrowed through bond issuances domestically and internationally, as well as other loans. These funds are owed to bondholders, including pension funds, insurance companies, banks, institutional investors, and private investors, as well as foreign lenders.
Future obligations not included in the official debt figures include the budgetary pension commitments to former state employees and military personnel, estimated at around 716 billion shekels by the end of 2024. Additionally, the National Insurance Institute faces an actuarial deficit of approximately 800 billion shekels, representing the projected gap between future liabilities and expected resources.
Combined, the budgetary pension liabilities and the National Insurance deficit total about 1.5 trillion shekels. When added to the financial debt, the total liabilities approach 3 trillion shekels, exceeding 140% of Israel's annual GDP. The article notes that while debt can be beneficial for funding growth-oriented investments, excessive borrowing to cover current expenses can strain future budgets, diverting funds from essential services like health, education, and infrastructure towards interest payments.
Interest payments on the government debt are projected to reach 64.6 billion shekels in the 2026 state budget, a significant increase from 2022. The author questions whether Israel can sustain its current trajectory of high defense spending, inflated government budgets, and growing future commitments without compromising its future financial capacity.
