Israel’s war on the Gaza Strip continues to put pressure on the occupation economy, at a time when the Central Bank of Israel reduced its growth forecasts for the next year 2024, indicating a “high level” of uncertainty regarding the duration and scope of the war with the Palestinian resistance movement Hamas, as well as the lack of appropriate government decisions to finance… The resulting economic repercussions.
The Central Bank of Israel expected the economy to grow by 2% in 2024, which is lower than its previous forecast of growth of 2.8% next year.
The economic repercussions resulting from the war and the expected decline in private consumption prompted the Israeli Ministry of Finance and global credit rating agencies to reduce growth expectations in recent weeks, as estimates indicate that this war will cost the Israeli economy more than $53 billion, according to what the Wall Street Journal reported. ” Recently.
The bank’s expectations indicate that the special budget costs of the war (expenditures in addition to the loss of income) will reach 10% of the GDP next year, 2024, while the debt-to-GDP ratio is expected to rise to 66% at the end of 2024, according to what was stated. The Times of Israel reported in a recent report.
In this report, we will discuss a number of issues that had an impact on the Israeli economy due to the war. and the most important:
High cost of borrowing
Israel has borrowed billions of dollars in recent weeks through privately negotiated deals to help finance its war against Hamas, but has had to pay unusually high borrowing costs to get the deals done.
So far, Israel has borrowed more than $8 billion since the beginning of the war with Gaza, which has ballooned the budget deficit to $6 billion. This includes $5.1 billion that Israel has raised through 3 new bond issues and 6 increases to existing bonds denominated in dollars and euros. It also raised Israel received more than a billion dollars from American institutions that bought Israeli bonds.
One of the major repercussions of the Israeli aggression on Gaza was primarily an increase in the interest rate on bonds issued by the Hebrew state to attract investors and buyers significantly.
Israel now pays interest ranging between 6.25% and 6.5% on bonds maturing within 4 and 8 years, respectively. This is much higher than standard US Treasury bond yields, which ranged between 4.5% and 4.7% when issuing bonds, which adds additional burdens. On the exhausted Israeli treasury.
“Israel Bonds” is part of the “Israel Brokerage Development” company, which is headquartered in New York City, USA, and was founded in 1951 by former Prime Minister David Ben-Gurion.
Its securities are fully backed by the Israeli government, according to its website, and Israeli bonds represent nearly a third of the country’s foreign currency issuances, according to what Bloomberg stated in a recent report.
Israeli assets, including the local currency and dollar bonds, have declined significantly since the start of the war, amid traders’ fear that the war will spread to other countries in the region and affect Israel’s economy, at a time when JPMorgan Chase & Co. expects output to contract. The occupation’s gross domestic product increased by 11% on an annual basis.
Increased insurance costs for Israel’s debt
The costs of insuring Israel’s debt against default have skyrocketed, doubling from less than 60 points in early October to 120 points last November, according to the Financial Times.
The Financial Times quotes experts as saying, “Markets are still placing very high interest rates on Israel’s international debt, and markets are concerned about how the war will affect Israel’s growth, public debt levels, and subsequent sovereign ratings as the war continues and enters its third month with no clear horizon for its end.”
Israel rarely faced difficulties in finding buyers for its debts in the past, but the situation changed after its aggression against Gaza with the deterioration of the economic prospects it faces. JP Morgan recently said that it expects Israel to record a budget deficit of 4.5% next year 2024. , an increase from previous expectations of 2.9%.
The bank added that this could raise the ratio of government debt to gross domestic product to about 63% by the end of next year, compared to 57.4% before the war.
Decrease in foreign investment
The war between Israel and the Hamas movement casts a shadow over the future of the flow of foreign investments towards Israel, and this type of investments witnessed a significant decline in the first quarter of 2023 to about $2.6 billion, according to the Ministry of Finance report, which represents a 60% decrease compared to quarterly rates in 2020 and 2022.
The reason for this, according to the report, is due to the political turmoil in Israel before the war, especially the judicial reform movement led by Prime Minister Benjamin Netanyahu, which made many foreign investors wary of investing their money in the country. These reforms also led to the flight of many capitals to the country. the outside.
The war on Gaza on the seventh of last October came after the Al-Aqsa Flood operation launched by the Izz al-Din al-Qassam Brigades – the military wing of Hamas – to make matters worse regarding the future of the flow of foreign investments in the country, as many investors believe that investment in Israel is currently facing… A lot of risks.
The venture capital sector in Israel has recorded a sharp slowdown in concluding deals since the outbreak of the war with Hamas, dealing a blow to the country’s technology industry.
About $325 million of total project financing was invested in Israel during the month of October through 120 deals, down from $1 billion in 232 deals recorded during the previous September, according to data collected by the local market research company (IVC). The Financial Times quoted it in another report.
High interest rates and low general assessments of the Israeli economy led to a slowdown in investment in private Israeli companies in various markets, especially in the technical sector. The sudden lack of investment deals a painful blow to Israel’s image, which is described as a “startup nation.”
More than 40% of technology companies said that their investment agreements were delayed or cancelled, while only 10% were able to hold meetings with investors.
In a survey conducted by the institute that included 507 advanced Israeli technology companies, more than 70% of these companies reported postponing or canceling their important orders and projects.
Israel has been waging a devastating war on the Gaza Strip for the 72nd day, which has so far left 18,800 martyrs and 51,000 wounded, most of them women and children.
