Israel's War Compensation Fund Nears Depletion, Financial Report Reveals

Israel's War Damage Compensation Fund is critically low, with only approximately 2 billion shekels remaining, according to the state's comprehensive financial reports for 2025. The fund, designed to cover damages from conflicts, is financed by a portion of real estate transaction taxes and government contributions. Since the start of the recent war until the end of last year, 37 billion shekels were paid out, with an additional 5 billion shekels disbursed this year. The reports indicate that the government will need to increase its contributions to replenish the fund.

The financial reports, covering about 89% of governmental entities, also highlight significant private sector investment in national infrastructure projects, totaling 53 billion shekels by the end of 2025, primarily in transportation. Future projects, including the ambitious 181 billion shekel metro system, will involve substantial public and private funding, though potential cash flow mismatches and revenue uncertainties are noted.

War-related expenditures have surged, reaching 231 billion shekels by the end of last year, with defense spending accounting for 166 billion shekels, or 7.8% of the GDP. The reports suggest that defense spending, including reservist pay and support for war victims, will remain high in the coming year, contrary to some budget office recommendations for a reduction.

Additionally, the state faces a substantial liability for budgetary pensions, amounting to 718 billion shekels, with annual expenses projected to peak around 41 billion shekels in 2038. Despite these significant expenditures, Israel's debt-to-GDP ratio remained stable at 67.9% at the end of last year, attributed to an upward revision of GDP growth.