Israel's Debt Climbed to 68.6% of GDP as the War Bill Came Due

Israel's public debt reached 68.6 per cent of gross domestic product in 2025, up 0.9 percentage points from 67.7 per cent in 2024, according to a first estimate published by the Accountant General at the Ministry of Finance, Yahli Rotenberg. The narrower government debt-to-GDP ratio rose by 1.0 point to 67.3 per cent, from 66.3 per cent.

Total gross debt raising in 2025 came to approximately 207 billion shekels, or about $66 billion, the ministry said, split across three channels: tradable domestic debt at 85 per cent of the total, non-tradable domestic debt at 3 per cent, and external debt at 12 per cent. Demand in the tradable domestic channel was described as high and stable through the year, with an average coverage ratio (bids received against bonds offered) of 4.5, up from 4.2 the year before. A final figure will appear in the annual report of the Debt Unit in the Accountant General's Department.

Why this one number carries so much weight

Debt as a share of output is the headline measure ratings agencies use to judge whether a government can keep servicing what it owes, and the ministry itself describes it as a key indicator in setting Israel's credit rating. A rise of under a point looks small; the direction is what agencies watch. Finance Minister Bezalel Smotrich attributed the increase to war spending, saying “the upward trend in the debt-to-GDP ratio stems from the security spending required following the war and the efforts to rebuild and support Israeli society”, Reuters reported when the estimate was published in late January 2026.

What the ratings agencies made of it

Moody's raised Israel's credit outlook from negative to stable on 1 February 2026 while leaving the rating itself unchanged at Baa1, The Times of Israel reported. The agency said Israel's exposure to geopolitical risk had eased materially, projected government debt stabilising around 68 per cent of output, and forecast 5 per cent growth in 2026 followed by 3 to 3.5 per cent in 2027, while warning that geopolitical risk remained a constraint on the rating.

The borrowing costs behind the number

Servicing that debt got slightly cheaper through 2026. The Bank of Israel cut its benchmark rate to 3.5 per cent on 6 July 2026, its second consecutive reduction, Globes reported, citing a strong shekel, inflation below the top of the target range and a fall in Israel's risk premium. A coverage ratio of 4.5 in the domestic tradable market points the same way: investors were bidding well over the amounts on offer, which is what keeps yields at auction down.

What the figures leave out

The estimate is a first pass and the ministry says the final number will come in the Debt Unit's annual report; it does not give the size of the debt in shekels, only as a share of output, and it does not state the GDP figure used as the denominator. It gives no breakdown of what the borrowing paid for, no average maturity or interest cost for the debt raised in 2025, and no projection for 2026.