In October, Israel faced a budget deficit of 22.9 billion shekels (approximately 6 billion dollars), according to official data from the Ministry of Finance. This shortfall has been attributed to increased war financing expenses with the Palestinian group, Hamas, in the Gaza Strip.
Understanding the Deficit
The Ministry of Finance revealed that the deficit, as a percentage of the gross domestic product (GDP), rose to 2.6 percent over the twelve months leading up to October, up from 1.5 percent in September. This spike was primarily due to the financial burden of the war with Hamas.
Declining Revenues
During the previous month, Israel experienced a 15.2 percent decline in revenues, primarily caused by tax deferrals and a decrease in social security income due to the ongoing conflict that erupted in early October.
A Drastic Increase in the Deficit
Comparatively, September saw a deficit of 4.6 billion shekels, while in October of the previous year, the deficit was at 3.1 billion shekels. This represents an increase in the deficit by more than sevenfold.
Impact on Tourism
On another note, Israel witnessed a 73 percent decline in tourist numbers in October due to the war in Gaza. According to the Israeli Central Bureau of Statistics, nearly 99,000 visitors, most of whom were categorized as tourists, visited Israel in October. This is in stark contrast to 369,000 in the same month of the previous year and approximately 485,000 during the same period in 2019 before the outbreak of the COVID-19 pandemic.
The report also revealed that 454,000 Israelis left the country last month, and flight numbers to and from Ben Gurion International Airport decreased by an average of 80 percent since the war began, according to the “Secret Flights” report.
The Cost of the Conflict
In the meantime, the Israeli economic newspaper, Calcalist, reported on Sunday, citing preliminary figures from the Ministry of Finance, that the cost of the war Israel is waging against Hamas in Gaza could reach up to 200 billion shekels (approximately 51 billion dollars).
The newspaper explained that the cost estimates, which account for 10 percent of the GDP, are based on the possibility of the war continuing for 8 to 12 months with Gaza remaining under fire without full participation from Hezbollah, Iran, or Yemen. It also takes into consideration the rapid return of approximately 350,000 Israeli reserve forces to active duty.
The cost of revenue losses is estimated to be between 40 and 60 billion shekels, in addition to another 17 to 20 billion shekels for compensating businesses and 10 to 20 billion shekels for rehabilitation.
Earlier, Finance Minister Avigdor Smotrich stated that the Israeli government is preparing a more extensive economic aid package for those affected by Palestinian attacks, which will be “larger and more comprehensive” than what was provided during the COVID-19 pandemic.
Government Commitment
Prime Minister Benjamin Netanyahu emphasized the government’s commitment to assisting all those affected. He stated, “My instructions are clear… Open the faucets and direct funds to those in need,” without specifying specific figures.
He added, “Just as we did during the COVID crisis in the past decade, we built a very strong economy here. Even if we suffer economic losses due to the war, as we are doing now, we will bear them without hesitation.”
Following the outbreak of the war, Standard & Poor’s downgraded its rating for Israel to “negative,” while Moody’s and Fitch placed Israel’s ratings under review for potential downgrades.
Conclusion
The financial toll of the conflict between Israel and Hamas in Gaza is substantial, with significant budget deficits and reduced revenue. The government is committed to providing economic support to those affected, despite the economic challenges posed by the ongoing war.
