The fiscal deficit pushes higher, 2025 expected to be challenging

ISRAEL - In Brief 08 Aug 2024 by Jonathan Katz
The fiscal deficit climbed higher in July to 8.1% GDP in the LTM, up from 7.7% last month. Total expenditure is up 32.8% y/y since the beginning of the year, and up 8.7% excluding spending due to the war (above the 4.9% allocated spending in the budget). Tax revenues are up 3.9% since the beginning of the year. Generally, we are seeing an expansionary fiscal policy (and not just due to the war), which is partially being offset but stronger-than-expected tax revenues. The MoF and BoI still see the 6.6% fiscal target this year as realistic (Q424 fiscal deficit will be lower than Q323, when the war broke out), but a possible escalation or prolonged slowdown in anticipation of an Iran/Hizballah retaliation is likely to push the deficit higher. The big challenge will be the 2025 budget requiring large fiscal adjustments in order to reduce the deficit to an acceptable level, which is expected to be difficult to implement politically.

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