After two years of intense fighting in Gaza, alongside repeated strikes in Lebanon, Syria, Yemen, and Iran, the Israeli economy now stands at a critical crossroads. Despite the prolonged conflict, Israel’s economy has shown remarkable resilience, continuing to perform as though war were a distant backdrop.
GDP remained strong; the shekel demonstrated strength, gaining ground against most major currencies; the Tel Aviv Stock Exchange reached new highs; full employment persisted; the hi-tech sector continued to drive growth; defense exports secured billions of dollars in new orders; major exits crossed the billion-dollar mark; and daily life for most Israelis carried on with little interruption.
However, the war’s cost, estimated in the hundreds of billions of shekels, has ballooned the deficit and increased the debt burden. The immense financial burden, rising debt-to-GDP ratio, strained budget, and the deep impact on sectors like tourism, construction, and agriculture demand more than just a return to the status quo.
Israel needs a bold, strategic plan for economic renewal that pivots from wartime expenditure to long-term, sustainable growth. This transition requires a decisive shift in national priorities, focusing on fiscal discipline, infrastructure investment, human capital development, and aggressive global market expansion.
Surgical cuts
The most immediate requirement is to regain fiscal stability and investor confidence. The government must undertake a strategic review of its budget, shifting funds away from non-productive consumption to growth-enhancing investments. This means surgical cuts to non-essential spending and ensuring that every shekel spent is measured by its productivity and Return on Investment (ROI).
An unwavering commitment is needed to stabilize and reduce the debt-to-GDP ratio. This requires a credible, multi-year fiscal plan that signals fiscal responsibility to both domestic and international markets. By doing so, the country can rebuild its economic foundation and send a strong signal that Israel remains a stable and reliable economic partner.
Despite the resilience of Israel’s hi-tech sector, foreign direct investment (FDI) has taken a hit due to the uncertainty created by the conflict. To reverse this trend, Israel must work to lower its “risk premium” in the eyes of global investors.
This involves simplifying bureaucratic processes, increasing transparency, and creating a clear, long-term vision for stability and growth. One key tactic is to actively attract funds and investors who are experienced in navigating geopolitically volatile regions and who understand the underlying strength of Israel’s economy.
Outdated infrastructure
Another area that demands immediate attention is Israel’s outdated infrastructure. The war has underscored the importance of modern, efficient systems for a growing economy, and it also presents an opportunity to rebuild with a focus on speed and efficiency.
The country’s current average of four years to obtain residential building permits and a decade for core infrastructure projects such as transportation, energy, and water is far too slow for a modern, competitive economy.
To address this, the government must implement expedited permitting processes and embrace fast-track legislation for infrastructure projects.
Investing in digital infrastructure, such as regional fiber-optic cables and data centers, is essential to maintaining Israel’s hi-tech edge.
Similarly, accelerating the development of the natural gas sector will not only ensure energy independence but also create new export opportunities that can strengthen Israel’s regional economic ties.
Rebuilding sectors
While the hi-tech sector remains the engine of Israel’s growth, economic recovery cannot be limited to this industry alone. The war has caused significant disruptions in other key sectors, including construction, which has been severely impacted by the loss of Palestinian labor.
To address this, Israel must invest in technical and vocational training for the local workforce, creating sustainable pathways for employment that reduce reliance on foreign labor.
Rebuilding the tourism sector is another key aspect of a broad-based recovery. This will require a global marketing campaign to rebrand Israel as a safe, vibrant destination for international visitors. The resumption of major international airline routes will be an important indicator of the return of confidence in the country’s stability and safety.
In addition to rebuilding existing sectors, Israel must also focus on building new areas of economic resilience, particularly in food security. By investing in AgriTech, Israel can not only scale up its domestic food production but also create new hi-tech export opportunities.
Initiatives to promote precision agriculture, robotics, and water management solutions will help Israel reduce its dependence on food imports and ensure its long-term sustainability.
Equally important is addressing the underrepresentation of certain population segments, particularly haredim (the ultra-Orthodox) and Arab Israelis, in the productive, high-wage economy. By aligning government incentives with national service (whether civil or military) and providing targeted vocational training, Israel can tap into the full potential of its workforce, thus opening up significant long-term growth opportunities.
Regional opportunities
The geopolitical volatility of recent years has highlighted the need for Israel to diversify its markets and strengthen its international standing. Exports form a significant portion of Israel’s GDP, and a clear national strategy is needed to double this contribution in the near future.
This strategy should include government-backed initiatives to promote international marketing, support small- and medium-sized businesses in expanding globally, and forge new strategic partnerships to secure supply chains.
The Abraham Accords offer a unique opportunity to expand Israel’s economic footprint in the Middle East. If geopolitical conditions allow, full implementation of these accords could open new avenues for economic cooperation with the moderate Sunni Arab world, particularly in energy, tourism, and commerce. Such regional collaboration could be transformative for Israel’s long-term prosperity.
As Israel looks to rebuild and expand its global reach, it must also rethink its international narrative. The “Start-up Nation” identity, while still relevant, is maturing, and Israel should position itself as a “Scale-up Nation” that offers not just innovation but also stability, maturity, and world-class expertise in critical areas like defense technologies, cyber security, and artificial intelligence (AI).
This new identity will attract investors and talent looking for long-term, stable opportunities in a rapidly changing world.
Ultimately, Israel’s path to economic renewal will depend on its ability to forge a new social contract. The immense sacrifices made during the war must be leveraged to create a more equitable and productive future for all of its citizens.
The economic recovery plan cannot simply be a technical blueprint; it must be a moral compact. Every citizen who has contributed to national defense and economic productivity must be prioritized in the allocation of resources, ensuring that the benefits of recovery are shared broadly.
By embracing a fiscally responsible, growth-oriented budget, slashing bureaucratic red tape, and strategically investing in the bedrock of human capital and critical infrastructure, Israel can not only recover the ground lost to war but propel itself toward a new era of security and prosperity, proving once again that adversity can accelerate creativity and national unity. The time for decisive, structural reform is now.■
Gali Ingber is head of finance studies at Israel’s College of Management Academic Studies