Israel’s 619 billion shekel ($168 billion) budget finally passed on Tuesday, cementing a victory for Prime Minister Benjamin Netanyahu’s government. But according to leading economists and policy experts, the newly approved budget won’t do much to address Israel’s economic challenges and long-term structural weaknesses.
That same day, the credit ratings agency Moody’s announced that Israel’s credit rating would stay at BAA1, maintaining the country’s lowest ever rating. Although Israel has displayed economic resilience, it still has a “very high exposure to geopolitical risks,” the credit agency wrote.
Netanyahu and Finance Minister Bezalel Smotrich stood behind the budget, which allocates 110 billion shekels ($30 billion) for Israeli security. They said that the allocations prioritize national resilience, support families affected by the war, and strengthen Israel’s defense capabilities in a time of unprecedented threats. The government has also pointed to continued economic growth and low unemployment as signs that its fiscal strategy remains sound.
'Gov't actively boosting existential socioeconomic-demographic trajectory'
Dan Ben-David, an economist at Tel Aviv University who heads the Shoresh Institution for Socioeconomic Research, warned that the new budget would only exacerbate Israel’s most serious problems. He told The Media Line that the budget prioritized “the wish lists of the settlers and the Haredim”—two constituencies key to the stability of Netanyahu’s government—by focusing on religious schools and support for West Bank settlements to the exclusion of addressing the collapsing infrastructure in Israel’s north or the growing strain on the military and workforce.
“This government is actively boosting an existential socioeconomic-demographic trajectory,” Ben-David warned.
Around half of Israel’s children are currently receiving a “third world education” in Israel’s ultra-Orthodox and Arab educational streams, he noted, putting at risk the country’s long-term ability to maintain a first-world economy, military, and welfare system.
Roby Nathanson, head of the Tel Aviv-based Macro Center for Political Economics, described the budget as lacking vision for the future. “It focuses on expenditures without investing in productivity, education, or infrastructure. Worse, it increases taxes on businesses and offers no support for small enterprises damaged by war,” he told The Media Line.
“In recent months, businesses in the north have received some compensation for lost income, but there’s no support to rebuild their operations or invest in new equipment,” he added.
Nathanson said that the budget further institutionalizes a “selective welfare state,” in which ultra-Orthodox and settler communities receive preferential treatment and broader civil society is neglected.
That view was echoed by Menny Shalom, CEO of Nukkleus Inc., a publicly traded financial technology and investment company with multiple investment interests in the Israeli tech and defense sectors. “The 2025 budget reflects a political compromise more than a strategic economic vision,” Shalom told The Media Line. “It allocates substantial resources to religious parties that wield significant political influence, even though their sectors often underparticipate in the workforce and recent military efforts.”
Nathanson expressed cautious optimism about the overall economy—no thanks to Israeli financial policy. “The Israeli economy is doing well despite the government, not because of it,” he said, pointing to the country’s energy independence, strong high-tech sector, and robust defense industries as key factors sustaining growth. A recent $32 billion deal involving the cybersecurity platform Wiz, for example, is expected to yield around 15 billion shekels ($4 billion) in tax revenue.
“With better strategic investments, Israel could grow by 5% to 6%, but under this budget, 3% to 4% is the most we can realistically hope for,” Nathanson said.
Israel’s high-tech sector accounts for approximately 18% of GDP and over 50% of total exports and employs about 10% of the workforce, according to the government’s Israel Innovation Authority. With nearly 18% of the budget spent on defense, this sector also has a central role in Israel’s economic performance. The Stockholm International Peace Research Institute ranked Israel among the top 10 global arms exporters, and in 2022, Israel reported a record $12.5 billion in defense exports.
Shalom described Moody’s general concerns as well-founded. “But we also see resilience in several key sectors,” he noted. “High-value exits, strong export performance, and continued global demand for Israeli defense technologies provide reasons for cautious optimism.”
While defense spending is well-funded, more productive engines of economic growth like tech are left undersupported, Shalom said.
He also described a shift in global investor behavior. “Investor sentiment has become more nuanced,” he said. “Some global investors are increasingly bullish on Israeli defense and cybersecurity firms, while others remain hesitant due to fiscal unpredictability and social polarization.”
“We separate short-term volatility from long-term fundamentals,” Shalom said of his investment company. “We’re particularly interested in defense and cyber technologies, where global demand is rising. These sectors tend to be more resilient in times of instability.”
Energy is another strong sector for Israel. Since the discovery of three offshore gas fields in Israel’s exclusive economic zone, Israel has transitioned to a net energy exporter status. Natural gas now accounts for around 70% of Israel’s electricity generation, significantly reducing dependence on imports and strengthening the country’s economy.
Another point that keeps the economy afloat, Nathanson said, is Israel’s remarkably stable monetary policy. “The Bank of Israel is holding the line, even as fiscal policy collapses into politics,” he said.
