Initial Finance Ministry data show the 2025 deficit reached 4.7% of GDP, down from a forecast of 5.2%. The figures represent positive news for the Israeli economy. Finance Ministry data shows the war cost slightly under 200 billion shekels ($55.5 billion) in direct expenses.
Finance Ministry officials emphasized that the most important figure relates to the war's cost. According to updated estimates, from the start of fighting through the end of 2025, total war costs amounted to approximately 199 billion shekels ($55.3 billion). While exceptionally high, the sum is lower than initial estimates presented at the campaign's outset.
Tax collection recorded an increase of 20.97 billion shekels ($5.8 billion), which contributed to narrowing the budget deficit. The ministry noted that while tax increases implemented last year affected revenues, the main source of increased collection came from the financial sector. High stock market profits and continued growth in banking system earnings led to significant tax payments, which helped reduce the deficit considerably.
Another issue of great importance is Israel's credit rating. Recently, credit rating agency S&P raised Israel's rating outlook to "stable." The Finance Ministry called on other rating agencies to take a similar step, noting there is an expectation for outlook improvement – especially if the state budget is approved as planned.
Regarding US defense aid, the Finance Ministry noted that discussions have been underway between the Defense Ministry and security establishment officials to formulate how economic relations with the United States will be managed in the future. This comes against the backdrop of preparations for a period in which US defense aid may not be provided.
According to the Finance Ministry, current preparations are for cessation of US aid starting in 2028. However, ministry officials emphasized that at this stage it is unclear what the actual state of aid will be, and therefore it is premature to assess long-term impacts on the Israeli economy.
Additionally, Israel's interest expenses in 2025 totaled 58 billion shekels ($16.1 billion) – about a billion shekels higher than the Finance Ministry's initial forecast. While this weighed on the budget, Finance Ministry officials described the figure as reasonable, considering that the Israeli economy is dealing with a war being conducted on multiple fronts simultaneously.
