Israel’s national debt has surged to historic levels. By the end of 2024, total government debt reached NIS 1.33 trillion — roughly $364 billion — pushing the debt-to-GDP ratio from 61.3 per cent to 69 per cent in a single year. The Gaza and Lebanon wars consumed an estimated NIS 100 billion ($28 billion) in direct war-related costs in 2024 alone, within a total defence expenditure of NIS 169 billion. The 2025 Knesset-approved defence budget initially stood at a record NIS 109.8 billion, later supplemented by a further NIS 30.8 billion to cover the costs of the Iran conflict. Yet the question most commentators neglect is not how much Israel owes, but to whom.

The answer reveals an intricate architecture of domestic institutional power, diaspora loyalty, and global capital market confidence that together constitute what might be called Israel’s “financial Iron Dome.”

The Domestic Backbone

The overwhelming majority of Israel’s sovereign debt is held domestically. During 2024, the state raised NIS 278 billion, of which 79 per cent was raised through Israel’s domestic bond market. Since the outbreak of the Gaza war in October 2023, Israel has raised NIS 360 billion in total — NIS 272 billion domestically and NIS 83 billion from international markets. The ratio tells the story: roughly three-quarters of wartime financing has come from Israeli institutions and savers.

At the heart of this domestic absorption capacity are Israeli pension funds, provident funds, and insurance companies. By mid-2024, total assets managed by Israeli institutional investors exceeded NIS 2.5 trillion. Government bonds and short-term Treasury bills (Makam) held by these institutions stood at approximately NIS 1.02 trillion in the first quarter of 2024 alone. Israeli workers saving for retirement are, whether they know it or not, the single largest creditors of the Israeli state. Every shekel deducted from a payslip in Haifa or Herzliya finds its way, at least in part, into the government’s war chest.

This is not unique to Israel — most advanced economies finance the majority of their debt domestically. But in Israel’s case, the concentration is notable given the country’s relatively small population of under 10 million. The depth and sophistication of the domestic capital market is, as the Accountant General’s office has acknowledged, what enables the state to raise debt on a massive scale even during wartime.

Then there is the unique institution of Israel Bonds — formally, the Development Corporation for Israel. Conceived by David Ben-Gurion in the aftermath of the 1948 war, Israel Bonds was designed to channel Jewish diaspora capital directly into the Israeli treasury. Cumulative worldwide sales have now exceeded $55 billion since the program’s inception in 1951.

These are not ordinary bonds. They are non-tradeable, held to maturity, and sold primarily through community networks, synagogues, and Jewish organizational channels in the United States, Canada, and Europe. In wartime, sales spike dramatically. In the first four weeks after October 7, 2023, several US states alone invested $300 million. By November 2023, a record-breaking $1 billion had been purchased.

Over 90 US state and municipal pension and treasury funds have invested more than $3 billion in Israel Bonds to date. The New York state retirement fund holds over $350 million; Ohio’s state treasury and counties collectively hold over $300 million. The buyer base has expanded well beyond the American Jewish community to include corporations, insurance companies, universities, foundations, and unions. Israel Bonds thus represents a fascinating hybrid: part sovereign debt instrument, part expression of political solidarity, part community investment vehicle.

For the finance scholar, Israel Bonds embodies what we might call a “loyalty premium” — investors accept below-market liquidity (the bonds cannot be resold) partly because the act of purchase carries ideological and communal meaning beyond pure yield maximization. This is rational behavior when utility is defined broadly enough to include identity and belonging.

The International Capital Markets

The third pillar is conventional sovereign borrowing in global capital markets. In early January 2026, Israel completed a landmark $6 billion international bond offering — its first since the Gaza ceasefire — in three tranches of 5-, 10-, and 30-year maturities. Demand reached $36 billion, six times the amount actually sold, from over 300 institutional investors across more than 30 countries.

The underwriters read like a roll call of Wall Street royalty: Bank of America, Citi, Deutsche Bank, Goldman Sachs, and JP Morgan. Spreads over comparable US Treasuries narrowed to between 90 and 125 basis points — a 34 per cent improvement on the 2024 issuance and a return to pre-war levels.

Perhaps most striking was the participation of sovereign wealth funds from Abraham Accords countries. Gulf-based funds entered not through small satellite vehicles but through their flagship investment arms. During one investor presentation, a senior Gulf fund manager reportedly interrupted Israeli officials with the words: “We know everything. We’ve done our research.” The geopolitics of the Abraham Accords, it turns out, have a bond market expression.

This international appetite persists despite credit downgrades from all three major rating agencies during 2024, and despite the International Court of Justice’s July 2024 advisory opinion urging states to avoid economic relations linked to the occupied Palestinian territories. Capital, as always, follows its own logic.

The US Government Guarantee

Underpinning the entire structure is the US Loan Guarantees Program, which since 2003 has underwritten up to $3 billion per year of Israeli government borrowing. While the direct financial benefit has diminished as Israel’s own credit standing improved over the decades, the program functions as a sovereign backstop — a signal to global markets that Washington stands behind Israeli debt.

The Political Economy of Debt Ownership

Who owns a nation’s debt is never merely a financial question. It is a question about political accountability, strategic vulnerability, and the distribution of risk.

Israel’s debt structure — overwhelmingly domestic, supplemented by diaspora loyalty bonds, and topped up by enthusiastic international institutional demand — provides remarkable insulation from the kind of sovereign debt crises that have devastated other nations. There is no single foreign creditor capable of exerting leverage. There is no hostile government that can dump Israeli bonds to trigger a financial panic. The risk is distributed across millions of Israeli pension savers, tens of thousands of diaspora households, and hundreds of the world’s most sophisticated institutional investors.

But this insulation comes with a domestic cost. When 79 per cent of new debt is absorbed locally, Israeli savers bear the concentration risk. Their retirement savings are disproportionately exposed to the fiscal consequences of prolonged military campaigns, credit downgrades, and the economic contraction that saw GDP shrink by nearly 5 per cent in the second quarter of 2025 during the Iran conflict. The Israeli worker saving for retirement in Petah Tikva is, in effect, lending to the state to finance operations in Gaza — whether or not that worker supports the war.

The debt-to-GDP ratio is forecast to continue rising, potentially reaching the vicinity of 72 per cent by 2030. Israel’s total financing needs for 2026 alone are estimated at around NIS 200 billion. As long as the domestic capital market remains deep, the diaspora remains loyal, and international investors remain confident, the system holds. But each of these pillars rests on assumptions — about economic growth, about political stability, about the continuation of American strategic backing — that are not immutable.

The question “Who owns Israel’s national debt?” ultimately becomes “Who bears the cost if things go wrong?” The answer, for now, is overwhelmingly Israeli citizens themselves — through their pension funds, their savings, and their taxes. It is the most intimate form of war finance: a nation borrowing from its own future.

[https://www.youtube.com/watch?v=Eh3iAzbLUqI]

Who Holds Israel’s National Debt — A Structural Overview

Sources: Bank of Israel; Ministry of Finance Accountant General’s Annual Debt Report 2024; Israel Bonds (DCI); Reuters; author’s calculations. The Accountant General reports NIS 220bn in domestic tradable debt, NIS 4bn in domestic non-tradable debt, and NIS 54bn in external debt (of which ~NIS 9bn via Israel Bonds) out of NIS 278bn total 2024 issuance. The U.S. Loan Guarantee is a credit enhancement facility, not a direct debt holding.

© The Times of Israel (Blogs)