In a stunning display of economic fortitude amid ongoing wartime pressures, Israel’s foreign exchange reserves soared to an all-time high of $223.626 billion by the end of May 2025, the Bank of Israel reported Sunday. The record-breaking figure reflects an increase of $1.591 billion from April—marking yet another milestone in Israel’s post-crisis financial rebound.
Even as missiles fly and budgets swell to support wartime operations, Israel's financial engine appears to be firing on all cylinders. The reserves now represent 40.8% of the country’s GDP, solidifying Israel’s status as one of the most economically resilient democracies in a region plagued by instability.
From War to Wealth: The Mechanics Behind the Rise
The $2.446 billion revaluation gain in May played a major role in boosting the reserves. This increase was partially offset by $855 million in foreign exchange activities tied to government operations. Nonetheless, the net impact pushed the reserves into uncharted territory.
For context, Israel’s reserves stood at $210.510 billion in May 2024—meaning the country has added over $13 billion in reserves over the past 12 months, even while fighting an existential war against Iran-backed terror proxies on multiple fronts.
Notably, the central bank's cautious strategy to support the shekel—after announcing it could sell up to $30 billion in foreign currency at the start of the war—has proved wise. As of now, only $8.5 billion has been deployed, mostly in October and November 2023, leaving ample fiscal firepower in reserve.
Deficit Discipline: Finance Ministry Charts Responsible Path to Recovery
Coinciding with this financial high point, Israel’s cabinet greenlit a comprehensive fiscal roadmap through 2028 that aims to drastically reduce the budget deficit, which ballooned during wartime spending.
After peaking at 6.9% in 2024, the deficit is expected to shrink to 5% in 2025, and further decline to 2.8% in 2026 and 2027, stabilizing at 2.9% in 2028—well below the international danger threshold of 3%.
“The economic plan for 2026–2028 reflects a careful balance between cautious optimism and responsible fiscal steps,” said Ilan Rom, Director General of the Finance Ministry. “It 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.”
This commitment to fiscal prudence is particularly striking given the immense defense outlays and emergency humanitarian funding required since Hamas’ October 7 atrocities.
Israel plans to bring budget deficit below 3% of GDP for 2026-28. Hurt by the war, growth was some 1% in 2024 and is projected to grow 3-3.5% this year.https://t.co/YdpvoDLl4d
— The Jerusalem Post (@Jerusalem_Post) June 8, 2025
Forecasting Growth: A War-Battered Economy Eyes the Horizon
Despite the wartime strain, Israel’s economy is already showing signs of acceleration. After a sluggish 1% growth rate in 2024, dragged down by emergency wartime costs and domestic disruption, the economy is expected to grow between 3–3.5% in 2025, and surge to 4.4% in 2026, according to Finance Ministry forecasts.
However, officials caution that this economic plan does not yet factor in potential escalations in northern or eastern theaters, nor any new government policy decisions still under deliberation.
Smotrich demands Bank of Israel provide banking services to Israeli settlers targeted by sanctions, raising concerns of interference with central bank autonomy. More at https://t.co/S8stoLq0ac
— Israel Headline News (@IsraelHeadline) June 6, 2025
Bottom Line: A Fortress Economy Amid Fire
Israel’s economic indicators are defying conventional wisdom: record-breaking reserves, declining deficits, and a growth trajectory that puts it ahead of most OECD nations—all while under siege.
In the face of adversity, Israel isn’t just surviving. It’s building a war-resilient economic model that balances defense, diplomacy, and development—ensuring that the Jewish state remains both sovereign and solvent.
