Israel's fiscal deficit has surged to 8.3 percent of gross domestic product ( GDP ), equivalent to NIS 12.1 billion ($3.2 billion), according to preliminary figures released by the Finance Ministry. This sharp increase comes as the country continues to invest heavily in the ongoing conflicts with Hamas and Hezbollah.

This marks the fifth consecutive month that the deficit has exceeded the government’s annual target of 6.6 percent of national output, a goal set for the end of 2024. For context, Israel’s budget deficit stood at 4.2 percent of GDP in 2023.

The cost of war

The deficit has grown from 8.1 percent of GDP in July to 8.3 percent in August. This rise reflects the escalating military and civilian expenditures related to the protracted war with Hamas, which began on October 7. The trend has been consistent, with the deficit increasing from 7.2 percent in May and 7.6 percent in June.

In August, the Israeli government’s expenditure reached NIS 49.5 billion, bringing total spending for the year to approximately NIS 399 billion. This represents a 32 percent increase compared to the same period in 2023. Since the onset of the conflict in October, the costs associated with the war have surged to NIS 96.9 billion.

Will the deficit continue to rise?

Yes. The Finance Ministry anticipates that the deficit will continue to rise until the end of the third quarter, which concludes in September. However, officials expect a shift to a downward trend thereafter.

State revenues for August totaled NIS 37.4 billion. For the year to date, total revenue stands at around NIS 315.2 billion, compared to NIS 303.2 billion during the corresponding period last year, reflecting a 4 percent increase. Tax revenue saw an 8.1 percent rise in August and has increased by 1.9 percent since the beginning of the year, according to the Israel Tax Authority.

As the government grapples with the financial strain of ongoing conflicts, the impact on Israel’s fiscal health is becoming increasingly evident.