AP: Israel’s wars are very expensive with paying the bill will force it to make difficult choices
The Associated Press reported on the hefty losses incurred by the Israeli economy due to the ongoing war against Gaza and Lebanon, raising concerns about the long-term impact of the fighting on the economy.
In detailing the painful financial losses, the AP reported that military spending has ballooned and growth has stalled, especially in the dangerous border areas that have been evacuated.
AP quoted economic experts as saying that Israel may face a decline in investment and a rise in taxes, as the war strains government budgets and forces it to choose between social and military programs.
AP added that the Israeli government is spending much more money each month on the military, rising from $1.8 billion before the war began on October 7 to about $4.7 billion by the end of last year, according to the Stockholm International Peace Research Institute.
According to the institute, the Israeli government spent $27.5 billion on the military last year, ranking 15th in the world behind Poland, but ahead of Canada and Spain, both of which have larger populations.
Military spending as a percentage of annual economic output was 5.3%, compared with 3.4% for the United States and 1.5% for Germany.
In the three months following October 7, 2023, Israel’s economic output shrank by 5.6%, the worst performance among the 38 members of the Organization for Economic Cooperation and Development.
The war has also imposed other economic burdens.
Call-ups and extensions of military service threaten to reduce labor supply.
Security concerns are also deterring investment in new projects, while disruptions to air travel have deterred many visitors, hurting the tourism industry.
Meanwhile, the Israeli government is paying housing costs for thousands of settlers who fled the south near the Gaza border and the north, where they have come under Hezbollah fire.
Among the biggest concerns is the open nature of the fighting, which has lasted more than a year, according to the Associated Press, noting that its different from the experience of the July 2006 war, which didn’t last 34 days.
Moody’s credit rating agency cited this idea on September 27, when it downgraded the Israeli government’s credit rating by two notches.
While the occupation’s 2025 budget projected a deficit of less than 4%, Moody’s disputed these figures, predicting the deficit next year would reach 6%.
“A downgrade would lead to higher borrowing costs, which means Israelis will see cuts to public services and higher taxes,” said Karnit Flug, a former head of the Bank of Israel and vice president of research at an Israeli institute.
Based on these facts, the Associated Press concluded that Israel’s wars are expensive, and that paying this bill could force difficult choices.
