Finance Minister Smotrich's Tenure Marked by Record Spending, Foreign Investment Surge, and Credit Downgrades

As the current Israeli government nears its end, a performance review of Finance Minister Bezalel Smotrich's tenure highlights significant developments across five key areas. The Ministry of Finance, due to its broad influence on national priorities, budget frameworks, and economic stability, presents a complex evaluation landscape.

Coalition funds allocated under Smotrich's ministry reached unprecedented levels, with an average of NIS 5.6 billion annually, an almost eightfold increase from the previous government's average. Smotrich defended these allocations, stating they were necessary for war efforts, support for reservists, evacuees, survivors, and businesses, expressing pride in these expenditures.

Conversely, foreign direct investment in Israel surged to a record $26.2 billion in 2025, a 78% increase from 2024, largely driven by a few major acquisitions like Google's purchase of the cybersecurity firm Wiz. The Ministry of Finance, under Smotrich, implemented structural reforms and tax incentives aimed at easing operations for multinational corporations and foreign funds in Israel.

Despite these investment inflows, Israel experienced unprecedented credit rating downgrades in 2024. Moody's and S&P both lowered Israel's credit rating, citing increased defense spending due to the war, a widening deficit, and concerns over institutional quality and political polarization. S&P later revised the outlook to stable in November 2025.

Efforts to control the national deficit were notable. After a significant increase in 2024, partly due to war expenses, the deficit began to decline, reaching approximately 3.3% of GDP by July 2026. Smotrich implemented austerity measures, including VAT increases and budget cuts, alongside revenue-generating steps, to manage the deficit amidst substantial war expenditures.

Inflation significantly moderated, falling to 1.5% from over 5% in late 2022. While the Bank of Israel's interest rate hikes were the primary driver, Smotrich's ministry also pursued reforms in agriculture and dairy sectors, though some of his price-control measures drew criticism from economists for potentially creating fiscal pressures.