Israel suffered many losses as a result of its war on Gaza (Israeli press)

The Finance Committee of the Knesset (Parliament of Israel) approved a proposal to raise the 2024 budget deficit from 2.25% to 6.6% of GDP as a result of increased spending to help finance the war on Gaza.

The committee's approval paves the way for a full Knesset vote in the coming weeks.

Defense cost

The war has increased defense costs and compensation for those affected by it, including companies and residents of border towns near Gaza in the south and adjacent to Lebanon in the north, where Hezbollah fires rockets, as well as hotels in which tens of thousands of displaced Israelis reside.

The committee said, in a statement, “The difference in the target deficit amounts to about 70 billion shekels ($19 billion) and aims to finance the additional expenditures required as a result of the war.”

Earlier this month, the Israeli Knesset initially approved a revised budget for 2024 worth NIS 584 billion ($162 billion), or NIS 724 billion ($201.4 billion), including debt repayment.

Last year, Israel approved a budget for the years 2023 and 2024, but the Gaza war caused a shock to the government’s public finances, requiring budget changes and additional spending.

Going into debt

The British Financial Times newspaper quoted the Accountant General in the Israeli Ministry of Finance, Yali Rotenberg, yesterday as saying that Israel plans to borrow $60 billion this year, freeze government employment, and increase taxes after its military spending nearly doubled as a result of its war on the Gaza Strip.

Rotenberg said that the main factor in restoring the health of the Israeli economy is the demobilization of reserve soldiers, and that about a fifth of those called up are those who are still fighting (that is, about 60 thousand), expecting the number to decline to between 30 and 40 thousand by the end of next March, especially The intensity of the battles was "declining," he said.

It is noteworthy that the ongoing suffering of the Israeli economy as a result of the war on Gaza forced the Bank of Israel to keep interest rates unchanged during the past days, after it reduced them by a quarter of a percentage point last January.

By keeping interest rates at 4.5%, the central bank acknowledges that the war has had “significant economic consequences” on real activity and on financial markets.

Difficult months

The Governor of the Bank of Israel, Amir Yaron, said during a press conference: “It has been a difficult 4 months for Israel... In addition to security issues, the war also brings with it noticeable economic repercussions. It affects economic activity in general and financial markets, and the state of uncertainty remains high.” ".

The economy contracted by 19.4% annually in the last quarter of last year, reflecting the losses of the war, ending 2023 with growth of 2%.

Yaron expressed his concern that the construction sector would be affected by the shortage of workers, after Palestinian workers were prevented from working in Israel.

In the wake of Moody's downgrade of the credit rating this month, triggered by uncertainty over the war, Yaron said it was clear that markets had taken the downgrade into account.

Source: Al Jazeera + agencies