Bank of Israel estimates war costs at 350 billion shekels — Jerusalem Post
In Israel, the next government will inherit an economy with wartime fiscal expenditures of around 350 billion shekels in 2023–2026 and public debt approaching 70% of GDP. About half of these expenses were financed through borrowing, the Jerusalem Post reports, citing estimates by the Bank of Israel.
At the end of 2025, public debt stood at 68.5% of GDP, compared with 60.5% at the beginning of 2023, while the budget deficit reached 4.7% of GDP. The central bank also calculated that from the start of the war through the end of 2025, the country’s economy produced approximately 177 billion shekels less than it could have under different circumstances.
Defence spending is rising
Before the war, Israel’s defence spending amounted to about 4.5% of GDP. According to the International Monetary Fund’s estimate, it increased to around 8% of GDP in 2025 and may remain close to 6% of GDP in 2026.
The Bank of Israel’s July forecast projected a budget deficit of 4.9% of GDP in 2026 and public debt of around 69% of GDP. At the same time, an increase in the defence budget of up to 25 billion shekels, to approximately 183 billion shekels, could raise the deficit to about 5.5% of GDP.
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Adrian Filut, chief economic commentator at the Israeli outlet Calcalist, said the new government would have very limited room for budgetary decisions. Among the possible options, he named increasing budget revenues, broadening the tax base, cutting sectoral spending, reducing other expenditures, or new borrowing.
Education and labour productivity
Elise S. Brezis, a macroeconomist at Bar-Ilan University, believes that the main long-term risk is the quality of education and human capital. In her view, state-funded schools should provide a common core curriculum in mathematics and English while allowing communities to add religious and cultural subjects.
Brezis also proposes ending budget allocations that depend on family size or membership in a particular sector, directing funds toward education reform and public transport development. By her own estimate, changes to sectoral spending could save around 20 billion shekels. Filut stressed that education and the integration of Haredim and Arab Israelis into the labour market are both an economic and a budgetary issue.
