Israel 12-month trailing budget deficit at 5.0% of GDP in May

Israel 12-month trailing budget deficit at 5.0% of GDP in May

Israel's cabinet has approved a three-year plan aimed at reducing the country's budget deficit to below 3% of GDP by 2028. The plan, which was announced on Sunday, seeks to bring the deficit from an expected 5% this year to 2.8% in 2026 and 2027, and 2.9% in 2028 [1].

The Finance Ministry's plan projects economic growth of 4.4% in 2026, a rebound from the 1% growth experienced in 2024 due to the impact of the Israel-Hamas war. This year, growth is expected to accelerate to between 3% and 3.5% [2]. The plan does not include the financial implications of the latest military escalation or yet-to-be-finalized government policy decisions [3].

Ilan Rom, the director general of the Finance Ministry, described the economic plan as a "careful balance between cautious optimism and responsible fiscal steps." The plan ensures that future budgetary commitments will be made within the framework of the state budget, adhering to principles of prudent and responsible public fund management [4].

However, the Bank of Israel has warned that risks are higher than usual, with the central bank forecasting budget deficits of 3.5% to 4.0% for 2027 and 2028—exceeding government estimates. Governor Amir Yaron advised against reopening the 2025 budget to raise the deficit target due to current economic uncertainty [5].

To maintain market confidence, Yaron emphasized the need for lower debt levels. He suggested that any additional adjustments should prioritize spending cuts that do not undermine labor incentives or education, while also raising selective taxes and removing distortive tax exemptions, particularly in the realm of indirect taxation [6].

Despite the challenges, the plan reflects Israel's commitment to fiscal sustainability and responsible economic management. The success of this plan will be crucial in ensuring the country's long-term economic stability and growth.

References:
[1] https://www.jpost.com/israel-news/article-856968
[2] https://kfgo.com/2025/06/08/israel-plans-to-bring-budget-deficit-below-3-of-gdp-for-2026-28/
[3] https://www.watanserb.com/en/2025/06/09/israel-approves-three-year-economic-plan-to-cut-budget-deficit-below-3-by-2028/
[4] https://money.usnews.com/investing/news/articles/2025-06-08/israel-plans-to-bring-budget-deficit-below-3-of-gdp-for-2026-28
[5] https://www.tradingview.com/news/reuters.com,2025:newsml_L1N3SB02R:0-israel-aims-to-cut-budget-deficit-to-less-than-3-of-gdp-for-2026-28/