Israel's Budget Deficit Shrinks Despite War Costs, But Debt Mounts

Israel's budget deficit decreased by approximately 37 billion shekels in 2025 compared to the previous year, despite significant war-related expenditures. The deficit stood at 98.6 billion shekels, or 4.6% of GDP, down from 135.6 billion shekels, or 6.8% of GDP, in 2024. This improvement is attributed to a substantial rise in state revenues, which grew by 13.8% to reach 552 billion shekels in 2025.

However, the nation's financial situation presents a more complex picture. The deficit in equity, representing the gap between the state's assets and liabilities, widened to approximately 1.74 trillion shekels, an increase of about 155 billion shekels from the prior year. This means Israel's liabilities now stand at around 3.9 trillion shekels against registered assets of approximately 2.17 trillion shekels.

Government debt also increased, adding 87 billion shekels to reach 1.416 trillion shekels, a 6.5% rise. Interest payments on this debt climbed to 45.8 billion shekels in 2025, with total debt-related expenses, including those for National Insurance and yield guarantees, reaching 57.8 billion shekels.

The defense budget for 2025 was approximately 166 billion shekels, with a significant portion allocated to combat, procurement, and military buildup. Reserve duty payments and benefits constituted about 19% of the defense budget. Additionally, the state has paid out approximately 35.1 billion shekels in compensation to war-affected individuals and entities from October 7, 2023, to the end of June 2026, with further payments expected.

Long-term liabilities, such as budgetary pensions, exceed 700 billion shekels, with the defense establishment accounting for the largest share at about 232 billion shekels. The article notes that some financial data is preliminary, with certain ministry reports lacking full auditor approval, potentially affecting the overall assessment of the state's financial standing.