In a sobering announcement today, Yaheli Rotenberg, the Accountant General of Israel’s Ministry of Finance, disclosed that the country’s cumulative deficit has surged to 6.2% of the GDP over the past 12 months, amounting to a staggering 117.3 billion shekels. This marks a continuous upward trajectory, with the deficit increasing by approximately 15 billion shekels in the last month alone.

The updated state budget for 2024, approved less than a month ago, had foreseen an annual deficit of 6.6%. However, the latest figures indicate that the Treasury is now merely 0.4% away from this projected target, a worrying sign given that it’s only the third month of the year.

As the deficit growth trend persists, the Treasury now anticipates the annual deficit to swell to a range of 7.5% to 8%. Each percentage increase in the deficit translates to approximately 20 billion shekels added to the state’s financial burden.

Rotenberg, however, offered a glimmer of hope, suggesting that the deficit’s ascent may begin to decelerate towards the latter part of the year. While it’s expected to remain higher than pre-war levels, there’s optimism that the deficit may dip, particularly in the last quarter of 2024 compared to the same period last year when the country was embroiled in conflict.

The root cause of the deficit surge lies predominantly in escalated government spending, which has skyrocketed by 38.1% since the beginning of the year. This surge contrasts sharply with a meager 0.3% increase in income during the same period, underscoring the financial strain faced by the nation.

Since the onset of the conflict, Israel has transitioned from a surplus to a deficit, illustrating the toll the war has exacted on the economy. Despite tentative signs of recovery, the fiscal deficit continues to widen, posing significant challenges for policymakers as they navigate the delicate balance between economic stability and financial responsibility.

Israel’s Finance Minister Bezalel Smotrich (Flash 90)