The Other War: Israel is Facing Financial Ruin – SPECIAL REPORT

The gap between Israel's words and actions is growing. (Image: Palestine Chronicle)

By Palestine Chronicle Staff  

Some estimations, cited by Al-Jazeera, say that Israel could lose anywhere between $51 to $60 billion if the war continues for eight months.

Once upon a time, Israel, at least in the eyes of the West, existed as a success story. 

This success allowed Tel Aviv to brag, not only about supposedly being ‘the only democracy in the Middle East’, but also the only truly stable state, in the midst of economic uncertainty that often ravages many Middle Eastern economies, from Egypt to Iran to Turkiye. 

The Israeli economy, however, has always been sustained by strong US-Western backing, either through direct contributions to the Israeli economy, investments or, as in the case of Washington, loan guarantees as well. 

All of this has allowed Israel to boast about its strong credit, thus attracting some of the world’s largest tech companies, financial institutions and more. 

Spider Web Economy

The favorite term for Palestinian Resistance groups in depicting the sorry state of the Israeli military as of late has been, the Israeli army is as weak as a ‘spider web’. 

Whether Al-Qassam Brigades and others knew that that definition could also apply to the Israeli economy or not, is a different story.

For now, however, we should be certain that the Israeli economy is also as weak as a spider web: sophisticated in its structure, but vulnerable in its dependency on few sectors, operated by a relatively limited workforce. 

Some estimations, cited by Al-Jazeera, say that Israel could lose anywhere between $51 to $60 billion if the war continues for eight months. This represents nearly 10 percent of the total GDP of Israel.

But even if the war finishes much sooner, great harm has already been done. 

Military Costs 

Israel has summoned nearly 400,000 reserve soldiers to help in combating and supposedly defeating Hamas. 

The direct cost of these soldiers, according to Israel’s own estimations, is $1.3 billion a month. 

But that is just a fragment of that cost. These soldiers represent the engine of the economy, especially the technology sector, which mostly relies on younger workers, who are now fighting an unwinnable war in Gaza. 

The weekly losses to the Israeli economy resulting from this is $1.2 billion. This is precisely why the Israeli Broadcasting Corporation (KAN) recently reported that Tel Aviv is in the process of discharging thousands of reserve soldiers so that they may return to save the deteriorating economy. 

A day later, Israeli newspaper Yediot Ahronot said that the army has already discharged thousands of its soldiers and officers, but without an official announcement. 

Then, there is the actual cost of the war, estimated at $260 million a day. Bloomberg news reported that this daily cost is constantly increasing, which will put yet more pressure on the Israeli budget. 

For its part, Al-Jazeera made a simple calculation, arguing that anywhere between $10 to $12 billion have already been spent on the military cost of the war.

Budget Deficit

Where does all of this money come from? Israel has already borrowed $6 to $8 billion to cover its budget deficit, which has reached $6 billion in October alone – an increase of 400 percent on a monthly basis. 

Israel is expected to borrow yet more money to cover widening budget deficits in coming weeks and months. 

So desperate has Israel become in manipulating numbers that Netanyahu and his Finance Minister Bezalel Smotrich are discussing an adjustment to the 2023 budget – even though only a few weeks separate Israel from the end of the fiscal year.

The Israeli Central Bank is in panic, arguing that a budget deficit will further harm several major economic sectors in the country, which include the manufacturing sector, tourism, aviation, and energy. 

S&P has already shared some bad news about the Israeli economy, estimating that Israel’s GDP will contract by 5 percent in the last quarter of this year – on a quarterly basis – while JPMorgan expects that the Israeli economy will contract by 11 percent during the last quarter – on a yearly basis.

Moody’s, on the other hand, estimates that the Israeli economy will shrink by 1.5 percent next year, expecting that the budget deficit will widen to 3 percent this year. 

The Financial Times newspaper argued that Israel’s economic woes will extend to next year’s budget, predicting that the fiscal deficit will double three times next year. 

Investment Problems

Israel’s bad news does not end here, as a weaker economy means less financial opportunities and less investments. 

The Israeli currency, the shekel, is shrinking against the dollar and the inflation rates are increasing. This resulted in the lowering of Israel’s financial classifications, namely by S&P, taking the status of the economy from stable to negative – even more negative if the war on Gaza continues. 

This also resulted in Fitch Ratings also offering a negative review of the Israeli economy. 

Moody’s, on the other hand, warned that Israel’s very credit rating could be downgraded if the war on Gaza escalates, or spreads beyond Israel’s borders. Naturally, this would lead to the failure of Israeli companies to attract investments or loans from international financial institutions, slowing down the wheel of the Israeli economy for years to come. 

Perhaps, Israel did not know that its devastating war on Gaza would have such a disastrous impact on its economy. Perhaps it did know, but for whatever political reasons, Israeli Prime Minister Benjamin Netanyahu felt that he had no other option. 

Either way, it turned out that Israel’s unprecedented military defeat will be coupled with an equally devastating economic crisis, the consequences of which are likely to be felt for a long time. 

UPDATE: Just before the publishing of this article a financial consulting firm in Israel, Leader Capital Markets, said that the cost of the Gaza war on the Israeli economy is likely to reach $48 billion this year and next. 

(The Palestine Chronicle)

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