At the end of 2023, the Israeli Ministry of Finance expected that the 2024 budget would record a deficit of 4.9% of GDP, compared to an actual deficit of 4.2% in 2023.
However, this year witnessed a worsening of the deficit, due to the rise in military spending resulting from the continuation of the Israeli war and the escalation of regional conflicts.
The deficit increased despite American support
Despite the Israeli Ministry of Finance’s attempt to reduce the deficit figures by factoring in the expected US support of $18 billion in military aid, the United States has not fulfilled all of its pledges.
In 2022, Israel achieved a surplus of 0.6% of GDP thanks to stable military spending, improved tax collections, and increased foreign investments.
But with the continuation of the Israeli war through 2024, especially in Gaza and the conflict spreading to Lebanon, Yemen and Iran, the fiscal deficit rose sharply.
Additional budget to cover war costs
On Tuesday, the Israeli Knesset approved an increase in the 2024 budget and raised the deficit ceiling to 7.7% of GDP, compared to previous expectations of 6.6%.
The total budget amounted to 760.5 billion shekels ($207 billion), which included 557.5 billion shekels ($152 billion) for regular expenses and 202.8 billion shekels ($55.3 billion) for project development and capital accounts.
Since October 7, 2023, Israel has been waging a large-scale war on Gaza, supported by the United States.
This war, which resulted in more than 153,000 Palestinian martyrs and wounded, most of them children and women, in addition to 11,000 missing persons, led to one of the worst humanitarian disasters in the world.
The massacres also continued, despite the International Criminal Court issuing two arrest warrants against Prime Minister Benjamin Netanyahu and former Defense Minister Yoav Galant for war crimes and crimes against humanity.
Monitoring the deficit throughout the year
The Israeli budget deficit witnessed fluctuations throughout 2024, as it gradually increased with the escalation of military operations.
Here is a monthly look at the evolution of the deficit:
- January: The deficit reached 4.5% at the beginning of the year.
- February: It rose to 4.8% as a result of increased defense spending to confront regional tensions.
- March: The deficit recorded 5.2% as military preparations intensified.
- April: The deficit reached 5.7% due to ongoing security concerns.
- May: Increased to 6.1% as the government implemented additional spending measures.
- June: The deficit reached 6.6%, the declared annual target.
- July: Israel’s budget deficit continued to rise, reaching 7.0% of GDP.
- August: The deficit exceeded the annual target and reached 7.5%.
- September: It rose to 8.5% as a result of the escalation of the war in Gaza and Lebanon, with spending amounting to 103.4 billion shekels ($28 billion).
- October: The deficit fell slightly to 7.9%.
- November: The deficit rose again to 8.2%.
- December: The deficit stabilized at 7.7%.
The impact of the deficit on the Israeli economy
By the end of the year, the deficit stabilized at 7.7% of GDP ($40.5 billion), its highest level in years.
This figure reflects the significant impact of the war on the Israeli economy, with a large portion of the budget allocated to military spending and ongoing war costs.
With continuing regional conflicts and no diplomatic solutions on the horizon, Israel faces increasing economic challenges that may affect its financial stability in the near future.
