Israel’s fiscal deficit widened to 4.9% of GDP in the 12 months to the end of January 2026 or NIS 104.5 billion, up from 4.7% at the end of December 2025, the Ministry of Finance Accountant General reports.
In January 2026, there was a high fiscal surplus of about NIS 16.9 billion, nevertheless considerably lower than the surplus of NIS 22.8 billion in January 2025, when state revenues jumped 45.4% ahead of tax hikes.
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Government spending in January was within the framework of a continuation budget based on one twelfth of the original 2025 budget. This actually restricted spending as there is a gap of tens of billions of shekels between last year’s budget and the current 2026 budget proposal.
By law, the government must approve the budget by the end of March, or the Knesset will dissolve, and on Tuesday the Knesset is scheduled to begin discussing the sections of the Budget Law and the Economic Arrangements Law and prepare them for the second and third readings. As part of the state budget, the deficit target is 3.9% – a framework that, while it will not increase Israel’s debt-to-GDP ratio, which grew during the war, will not reduce it either.
Increase in debt-to-GDP ratio
At the end of last month, the Accountant General’s Office announced that the government’s debt-to-GDP ratio in 2025 was 68.6%. This is an increase of 0.9% from 2024, attributed to the heavy expenses of the war. Israel entered the war with a debt-to-GDP ratio of about 60%, after during the Covid pandemic it had climbed to 71.1%.
The fiscal deficit in 2025 was 4.7% of GDP, while last August the Ministry of Finance predicted that it would be 5.2%. The fiscal deficit beat the target due to higher than expected state tax revenues.
The Bank of Israel research department forecast published last month predicted 5.2% GDP growth in 2026 compared with about 3.5% in recent years. The higher growth this year isa attributed to the Gaza ceasefire and decrease in fighting. In 2027, growth is expected to be about 4.3%. This year, the bank expects the fiscal deficit to fall to 3.6%, but the debt-to-GDP ratio will remain at 68.5%.
Published by Globes, Israel business news – en.globes.co.il – on February 9, 2026.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2026.
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