Israel's Annual Deficit Drops to 3.2% of GDP Amid War Spending

Israel's cumulative annual deficit has fallen to 3.2% of its Gross Domestic Product (GDP), the lowest level since the start of the "Swords of Iron" war in October 2023, the Ministry of Finance announced Tuesday. This figure was released as part of the state budget performance report for August 2026.

The ministry also reported that state revenues are exceeding projections, even with anticipated tax increases compared to the previous year. While defense spending is higher than planned, civilian ministries are underspending their budgets.

The deficit for August alone was NIS 7.9 billion, a decrease from NIS 9.6 billion in August of the previous year. The total deficit since the beginning of 2026 stands at NIS 19.2 billion, which is 2.5 times lower than the same period last year and four times lower than in August 2024. The annual deficit relative to GDP decreased by 0.1 percentage points in August to 3.2%, the lowest since October 2023 when it was 2.6%.

Defense expenditures from January to August reached NIS 123 billion, exceeding the plan by NIS 10 billion, with further defense spending increases expected in 2026. In contrast, civilian ministries have underspent their budgets by approximately NIS 32 billion, having spent NIS 255 billion out of an allocated NIS 287 billion for the period. This civilian spending is 0.1% lower than in the same period of 2025, despite population growth and inflation.

State revenues in August were NIS 47.9 billion, up from NIS 43.9 billion last August. Year-to-date revenues for 2026 total NIS 397.6 billion, about 14% higher than the same period in 2025 and 6% (approximately NIS 22 billion) above the plan for this period.