Gaza War Worsens Israel's Debt by Over $299 Billion

Israeli Finance Ministry Accountant General Yalli Rothenberg predicted that Israel's public debt would increase to 62.1% of GDP in 2023 due to the financial fallout of the war on Gaza, after forecasts had suggested a 1% year-on-year decline to 59% before the Al-Aqsa Flood, launched by the Palestinian resistance led by Al-Qassam Brigades last October 7th, according to the Israeli economic newspaper Globes.

Only initial damage
Though Rotenberg's prediction is better than others', with the debt at 63% of GDP, the percentage will only reflect the initial damage to Israel's economy from the ongoing war in Gaza, the paper reported.

The debt-to-GDP ratio is expected to continue to rise during 2024, but the big question bedeviling markets and ratings agencies is how high will it rise?

To stop the debt-to-GDP ratio from rising, the fiscal deficit - currently 4.2% - must be narrowed to 3%, but according to the revised 2024 budget, where the government estimates the deficit will rise to 6.6%, no recovery is expected before 2025 in the best-case scenario, the paper reported.

At the height of the COVID-19 pandemic, Israel's debt/GDP ratio jumped from 58.8% in 2019 to 70.7% in 2020. This time, however, the accountant general believes the figure will not reach 70% before it declines.

Israel's debt at the end of last year was 1.12 trillion shekels ($299.18 billion), up from 1.03 trillion shekels ($275.13 billion) at the end of 2022, due to the war's cumulative burden.

Infographic: Israel's economic losses continue as a result of the Gaza war

shrinkage
Israel's Finance Ministry's chief economist, Shmuel Abramson, predicted last week that its economy would contract by 1.5% if the war in Gaza continues through the end of the year, after it had projected a 2.7% growth for 2024 before the war began, according to Globes.

"In the baseline scenario that predicts the war's end next February, Abramson predicted a 1.6% growth in Israel's GDP for the current year, while shrinking in per capita terms."

The basic scenario assumes that the war on Gaza will continue for five months until it ends this coming February.

Source: Israeli press