Israel cabinet OKs revised budget, cenbank says Iran war needs 'careful fiscal management'

JERUSALEM, March 11 (Reuters) - The Bank of Israel on Wednesday cautioned the government to stick to "careful fiscal management" in funding the air war against Iran and to avoid allocations for new programmes not required for the war effort.

To help fund the conflict, Israel's cabinet approved a revised 2026 budget that includes boosting defence spending by 32 billion shekels ($10.3 billion) this year, while raising the budget deficit target to 5.1% of gross domestic product from 3.9%, the Finance Ministry said.

In all, total spending will reach 699 billion shekels excluding debt servicing. Defence will account for 143 billion of that, while wide spending cuts of 3% in civilian spending will offset some of the higher defence outlays.

The central bank in response said the war budget should not include items that do not contribute to long-term growth or tax cuts. It added that the geopolitical environment created by the conflict "tilts risks to economic activity to downside, at least in short term."

Parliament still needs to approve the budget by the end of March or new elections are automatically triggered.

($1 = 3.1067 shekels)