Year of War Creates Cracks in Israel Borrowing Strength

Israel s economy has been enduring the financial strain of a year-long war, with the potential to escalate into a regional conflict. The war in Gaza has cost Israel around 100 billion shekel ($26.3 billion) in direct funding through August, with the Bank of Israel estimating a rise to 250 billion shekel by the end of 2025. The conflict has led to credit rating downgrades and increased the cost of insuring Israel s debt against default, while the budget deficit has grown. The war s impact on Israel s economy is significant, with debt-to-GDP rising to 67% and the government deficit reaching 8.3% of GDP. The cost of the war is attributed to Israel s Iron Dome air defenses, large-scale troop mobilization, and intensive bombing campaigns. Despite these challenges, Israel s finance minister maintains that the economy is strong and credit ratings should rebound once the war ends. However, the war has led to a narrowing investor base, with foreign investors pulling back from the domestic bond market. The share held by non-residents declined to 8.4% in July from 14.4% in September of the previous year. Equity investors have also reduced their holdings of Israeli stocks, with global funds ownership at its lowest in a decade. The war has also affected Israel s key sectors, with displacements, worker shortages, and restrictions on Palestinian workers hindering agriculture and construction. The economy has not yet recovered from a 20% plunge in the fourth quarter of the previous year. To address these challenges, the government has pledged $160 million in public money to boost venture capital funding for the crucial tech sector, which accounts for 20% of Israel s economy. However, rising borrowing costs and economic pressure remain a concern. Local investors are looking for signs of consolidation efforts from the government to continue funding the sizeable deficit. In summary, Israel s economy is facing significant challenges due to the ongoing war, with rising borrowing costs, credit rating downgr

Source: english.aawsat.com
Published on 2024-10-06

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