Israel's fiscal deficit narrowed to 4.2 percent of gross domestic product in the twelve months through March 2026, down from 4.7 percent in February, despite the ongoing war. The improvement was largely driven by a surge in tax revenues, including exceptional income linked to the sale of the cybersecurity company Wiz to Google.

In March, government spending totaled 56.7 billion Israeli shekels, while revenues reached 55.1 billion Israeli shekels. Since the start of the year, spending has risen 10 percent compared with the same period last year, with defense expenditures climbing 19 percent. By contrast, civilian economic ministries reduced spending by nearly 8 percent.

An estimated 8.7 billion Israeli shekels in one-time tax revenues helped reduce the deficit by 0.5 percentage points from the previous month. However, the Accountant General cautioned that higher tax refunds, war-related tax relief, postponed tax payments, and a 700 million Israeli shekel drop in import revenues weighed on overall income.

The Chief Economist raised the government's revenue forecast following stronger-than-expected collections, leaving a 500 million Israeli shekel gap compared with earlier projections. With the 2026 state budget approved only at the end of March, earlier spending limits also helped contain the deficit, which remains below the 4.9 percent of gross domestic product target for the year.