The Bank of Israel has 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, Reuters reports.

To help fund the conflict, Israel’s cabinet has approved a revised 2026 budget that includes boosting defence spending by 32 billion shekels ($10.3bn) this year, while raising the budget deficit target to 5.1 per cent of gross domestic product from 3.9pc, 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 3pc in civilian spending will offset some of the higher defence outlays.

The central bank, in response, has said the war budget should not include items that do not contribute to long-term growth or tax cuts.

It has added that the geopolitical environment created by the conflict “tilts risks to economic activity to downside, at least in [the] short term.”

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