By Steven Scheer

JERUSALEM (Reuters) -Israeli Finance Minister Bezalel Smotrich on Sunday called for talks next week to draft the 2025 state budget which he said would be “marathon discussions” aimed at moving the economy on from a war that has strained public finances to boosting growth.

In a letter to budget chief Yogev Gradus, Smotrich said the budget discussions would be held on June 18-19, a process that typically takes two months rather than two days. Bank of Israel Governor Amir Yaron is scheduled to participate.

“I will ask you to prepare for two days of marathon discussions on Tuesday and Wednesday, 18 June 19,” he said in the letter. Smotrich said they would examine the data to obtain a comprehensive and clear picture to respond quickly and efficiently to the challenges the country faces.

Smotrich said the war and its effect on the economy required fiscal responsibility and full transparency in policy formulation and decision-making.

Israel’s economy is projected to grow around 2% this year, or zero on a per capita basis.

Smotrich, has faced criticism from the public and opposition lawmakers for allowing big spending increases to finance the war against Palestinian Islamist group Hamas since Hamas’ attacks on Israel on Oct. 7, as well as against Hezbollah in Lebanon.

The extra spending has not been offset with cuts in other areas or higher taxes, so that the annual budget deficit reached 7.2% of gross domestic product in May, above a 6.6% target for all of 2024 – which itself was raised from a pre-war level of 2.25%.

In March, parliament approved an amended budget for 2024 that included tens of billions of shekels of war-time financing.

A central bank statement said Yaron had told cabinet ministers that “significant adjustment measures (are needed) in the 2025 budget in order to converge toward stability in the debt to GDP ratio in the coming years.”

Yaron also said “considerable amounts are (already) directed to issues that do not necessarily encourage growth”, referring to coalition funds earmarked largely for the ultra-Orthodox Jewish education system.

He also said in the central bank statement that there was a budgetary risk from a possible expansion of the war to include Hezbollah in Lebanon, and that defence spending was liable to be above government assumptions.

Smotrich last month overcame opposition from Defence Minister Yoav Gallant to set up a committee to examine Israel’s defence budget. Central Bank Governor Yaron said at the time that the war does not necessitate a “blank check” to the military.

On Smotrich’s watch, both S&P Global Ratings and Moody’s (NYSE:) have this year lowered their credit ratings for Israel due to elevated geopolitical risks.

Smotrich has said the cuts were not based on sound economic reasoning and tantamount to a pessimistic “manifesto.”