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Israel has incurred $16 billion after seven months of war, bringing its budget deficit close to exceeding this year’s target
Yaron explained, during the “Israeli Economy” conference, that these financial estimates address the effects on state budgets, and were calculated based on the loss of 40 billion shekels ($10 billion) in tax income and due to the increase in military spending, such as the wages of reserve forces and the purchase of ammunition. and civil aid.
Finance Ministry data published this month showed that the ongoing 12-month fiscal deficit swelled to 7% of GDP in April, higher than the government’s estimate of 6.6% for the whole of 2024.
As the financial losses of the war increase, Israel is on track to incur one of its largest budget deficits in this century. The Central Bank previously estimated that the total cost of the conflict would reach NIS 255 billion during 2023-2025.
“Imposition”
Yaron continued: “The security and civil costs amounted to hundreds of billions of shekels, and this is a heavy burden. I hope that the committee will study the steps with an annual vision, provided that the government makes sure that the correct steps are implemented so that this leads to a decrease in the debt-to-output ratio after the war.”
As the financial burden of the war increased, Israel came under heightened scrutiny from rating companies. In February, it received its first-ever downgrade to its sovereign rating – by one notch to “A2” – from Moody’s Investors Surveyor, a decision joined by Standard & Poor’s Global Ratings last month.
Yaron also referred to the risk premium, that is, the percentage of return that an investor requires in exchange for investing in a financial asset as compensation for bearing the risks associated with it. He said: “The state risk premium rose as the value of the shekel continued to decline. While this decline leads to higher prices, we have balances amounting to $200 billion.”
Rising budget spending is driving inflation, which is nearing the top of the government’s 1% to 3% target range after a two-month acceleration. The Governor of the Bank of Israel repeatedly called on the government to adopt a responsible financial policy in the face of rising war expenses.
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