The Israeli government’s debt-GDP ratio was 68.6% at the end of 2025, up 0.9% from the end of 2024, Ministry of Finance accountant general Yali Rothenberg has announced. Israel entered the war in October 2023 with debt-GDP ratio of 60% and it has risen following the heavy costs of the fighting. During the Covid pandemic the debt-GDP ratio reached 71.1%. While this may indicate that the ratio can be lowered quickly, the recovery after Covid swept through international markets, while the war was a more local event.
During the war, economists and analysts forecast that the ratio would be around 70%, so this is a reasonable figure. However, the road to returning to around 60% is still long. When work began on the 2026 state budget, the Ministry of Finance believed that it would be possible to return within 8 years with a gradual decrease of around 0.8% of GDP each year, and planned the fiscal deficit target for this purpose at 3.2% of GDP in 2026. However, the budget approved by the cabinet, and now awaiting Knesset approval has a much higher deficit target of 3.9%, and this will not allow the ratio to be lowered. The debt stands at NIS 1.4 trillion.
“We need fiscal space as we had after Covid”
In some countries around the world, the fiscal deficit is higher than Israel as well as the debt-to-GDP ratio. But Israel has special challenges, primarily the pace of geopolitical events that requires a low debt-to-GDP ratio to weather security crises.
Bank of Israel Governor Prof. Amir Yaron addressed this today at a conference marking the 50th anniversary of the Government Companies Authority. “The cost of the war is NIS 352 billion. We are not the US and cannot deal with debt the way they are dealing with it,” he said. “Therefore, we need fiscal space as we had after Covid, and the debt-to-GDP ratio fell to 60%. Even 5.5% GDP for the defense budget as planned is high. And with the additions that the prime minister talked about, of about NIS 350 billion, for security we will rise to about 76%.”
He added, “I talked for hours with investors during the war and I really had to hold their hands and explain to them that after the intensity of the war, our debt decreased. The government should be given credit for listening to the Bank of Israel’s recommendations and making budgetary adjustments of 1% in 2024 and 1.5% in 2025. The current deficit target is 3.9%. This leaves us with a debt-to-GDP ratio of 68.5%. It is important that at least this budget passes without further spending. There could be more geopolitical events with costs.”
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The Ministry of Finance’s statement stated that in 2025, total gross debt raising was roughly NIS 207 billion, conducted through the three debt raising channels: domestic tradable debt (85% of the raising), domestic non-tradable debt (3% of the raising) and external debt (12% of the raising). The domestic tradable channel showed high and stable demand throughout 2025, and the average coverage ratio was 4.5, compared with 4.2 in 2024.
From the beginning of the war until the ceasefire in October, the accountant general raised government debt totaling about NIS 524 billion, of which about NIS 411 billion was in the domestic tradable channel, about NIS 7 billion in the domestic non-tradable channel, and about NIS 106 billion in the external channel.
The fiscal deficit in 2025 was 4.7% of GDP, amounting to aboput NIS 98.6 billion. Total government spending this year was about NIS 651 billion, of which about NIS 91 billion was estimated to be expenditure to support the war effort, both on the security and civilian fronts.
The accountant general also said, “the government debt in 2025 was affected by the debt raisings carried out to finance the government’s needs during the war, alongside macroeconomic effects including inflation, interest rates, the exchange rate and economic growth.”
Rothenberg, who steps down at the end of the month, said, “The debt-to-GDP ratio reflects our use of fiscal space during a complex period. In the past two years, we have raised significant amounts of debt, with the high and stable demand indicating market confidence in the Israeli economy. It is important to note that the increase in the debt-to-GDP ratio in Israel is lower than in the reference countries, where an average increase of about 1.9 GDP points was recorded, more than double the increase in Israel, a trend that reflects a broad global phenomenon. As conditions stabilize, action must be taken to achieve renewed convergence and restore the fiscal path, in a way that will enable the debt-to-GDP ratio to be reduced.”
Published by Globes, Israel business news – en.globes.co.il – on January 25, 2026.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2026.
