After 10 months of an ongoing war… What is the Israeli financial situation look like?
As months goes by, Israel finds its projections for this year’s budget deficit lower than the actual figures recorded, making the Finance Ministry’s attempts to cover the deficit a disturbing nightmare amid rising interest rates and increased borrowing.
The Israeli war on the Gaza Strip caused Israel to record its worst deficit since at least the Second Intifada, at the beginning of the new millennium, as the deficit exceeded 8.1% in the twelve months ending last July.
Israel’s fiscal deficit continued to widen in July, reaching 8.1% of GDP over the past 12 months.
This percentage is equivalent to 155.2 billion shekels ($47.1 billion), according to the latest reports of the General Accounting Office of the Israeli Ministry of Finance, Yali Rotenberg, in a statement issued by the ministry earlier this week.
The fiscal deficit in the months ending in June was about 7.6% of GDP, while the Israeli Ministry of Finance expects the deficit to reach 6.6% of GDP, or about $34 billion.
These figures indicate that the budget deficit is constantly widening, making it more difficult for the country to bear the cost of the debts resulting from covering the deficit, especially with the rise in interest rates on both the dollar and the Israeli shekel.
Israel’s public debt to GDP exceeds nearly 67%, compared to nearly 63% before the Israeli war on the Gaza Strip last October.
In July alone, the fiscal deficit reached 8.5 billion shekels ($2.27 billion), compared to 600 million shekels ($191 million) in July 2023.
Since the beginning of 2024, the Israeli budget deficit has reached nearly 72 billion shekels ($19.3 billion), compared to a surplus of 6 billion shekels ($1.9 billion) in the first seven months of 2023.
Government spending since the beginning of the year has amounted to more than 352 billion shekels ($93.9 billion), an increase of 32.8% compared to the same period last year.
The main increase in the deficit was due to higher spending on defense and civilian ministries due to the war on Gaza, however, even excluding war expenses, the increase in government spending is about 8.7%.
This is in contrast to a rise of only about 3.1% in state revenues, which since the beginning of the year amounted to about 278 billion shekels ($74.13 billion), compared to 269 billion shekels ($71.73 billion) in the first seven months of 2023.
On more than one occasion this year, the Israeli Ministry of Finance estimated that the deficit would peak by next September, but the steady growth of the deficit every month makes it more difficult to stop the growth of the deficit by September.
The Finance Ministry’s Budget Department believes that the deficit will head towards a decline to the target of 6.6% starting in the last quarter of 2024, but these expectations are linked to the course of the war and preventing its expansion to Iran and Hezbollah.
Last June, the Ministry of Finance issued its latest forecasts for the financial reality of the budgets for the next three years, all of which indicate that the deficit will remain strongly present.
The Ministry of Finance expects a fiscal deficit of 5.2% in 2025, declining slightly to 4.4% in 2026 and then to 3.7% in 2027.
A deficit of more than 3% is considered high, according to ministry data that sets the government’s current spending commitments against revenue projections.
The spending limit allowed under the framework law for the Israeli budget for next year is about 545 billion shekels ($150 billion).
However, the government’s total minimum obligations already exceed 600 billion shekels ($165 billion), and therefore, by law, budget adjustments are needed.
The difference between the estimated and actual budget of 55 billion shekels ($15 billion) doesn’t include additional Defense Ministry spending, nor Israel’s rising debt payments, which amount to more than $34 billion combined.
