Israel's War Costs Soar Past $60 Billion, Impacting Economy and Future Budgets
Israel's ongoing war, nearly three years since the October 7th attacks, has incurred staggering costs exceeding 230 billion shekels (approximately $62 billion USD). This figure, when divided among Israeli households, equates to roughly 79,000 shekels per household, highlighting the immense scale of expenditures. The total economic price of the war is estimated to surpass 10% of Israel's annual GDP, equivalent to two annual defense budgets from peacetime.
The largest portion of these costs is allocated to defense. Defense spending is projected to reach 166 billion shekels in 2025, a significant increase from 75 billion in 2022. This includes substantial payments to reservists and the Ministry of Defense's rehabilitation department. Even with reduced combat intensity, military expenses continue to rise due to ongoing procurement of munitions, equipment repair, and continued reservist service.
The broader Israeli economy is also bearing a heavy burden. The Bank of Israel estimates that by the end of 2025, the cumulative loss in economic output compared to pre-war projections will be 8.6% of annual GDP, or approximately 177 billion shekels. This is largely attributed to the mass mobilization of reservists, displacement of residents from border areas, and a shortage of foreign workers, all of which reduce the labor supply.
Beyond direct military and economic output losses, civilian damages have also been costly. Over 37 billion shekels have been paid out for civilian property damage since the war began, with the compensation fund's reserves significantly depleted. The restoration of communities near Gaza is also a major expense, with around 17 billion shekels allocated to the "Tikum" program.
A significant portion of these war expenses is being financed through borrowing, increasing Israel's national debt. The central government deficit reached 4.7% of GDP in 2025, and the debt-to-GDP ratio rose to 68.5%. This means future generations will bear the financial burden through potentially higher taxes and reduced spending on essential services.
The Bank of Israel's broader estimate for the fiscal cost of the war between 2023 and 2026 is around 350 billion shekels, a figure that accounts for lost future growth and other long-term economic impacts not included in the initial 230 billion shekel calculation. The human cost, including thousands of bereaved families and a significant increase in individuals requiring rehabilitation services, remains immeasurable.
