Economic pressures on Israel are intensifying as the fallout from the wars in Gaza, Lebanon and Iran continues, amid rising military spending and public debt, credit-rating downgrades and growing living costs. These challenges are raising concerns about their impact on economic growth, investment and the labor market in the coming years.
اضافة اعلان
The Israeli government has spent more than $100 billion on the wars, while the economy has lost around $57 billion in gross domestic product.
Military spending has risen to more than $51 billion, an increase of nearly 160% compared with 2023.
Public debt has also climbed from $290 billion in mid-2023, equivalent to 60% of GDP, to around $370 billion, or more than 68% of GDP. It is expected to reach $400 billion by the end of the year, equivalent to about 70% of the size of the economy.
The repercussions have included credit-rating downgrades by Fitch, Moody’s and Standard & Poor’s, as well as an increase in value-added tax to 18%, alongside rising prices and declining purchasing power. The government has also allocated more than $1.5 billion to Haredi schools, despite their refusal to serve in the military, as part of coalition understandings linked to the military conscription crisis.
The call-up of around 300,000 reserve soldiers during the first year of the war, representing more than 6% of the workforce, disrupted economic activity and caused losses for small businesses. More than a quarter of a million Israelis also left the country, with only 7% of them having returned, according to figures cited in the report.
Resource Drain and Debt Challenges
Imtans Shhadeh, director of the Israel Studies Program at the Mada al-Carmel Research Center, said the Israeli economy was able to withstand the war during its early years because of its previous strength, high output and international standing. However, these resources are now being depleted, he said, warning that the economy could face a sharper downturn in the coming years if political and military instability continues and foreign investment declines.
Shhadeh explained that military spending supports some sectors of the economy, as part of government procurement goes to domestic industries. Arms and military technology exports have also increased. However, he warned that reliance on defense industries and advanced technology may not be sufficient to offset declines in other economic activities.
He added that Israel’s budget allocates around 150 billion shekels annually to loan and interest payments, while interest payments made by banks have risen by 50%. He warned that this could push the next government to cut spending on healthcare, education, infrastructure and social services, or impose new taxes and increase the tax burden on workers, further pressuring living standards.
Technology, Sanctions and Emigration
Shhadeh warned of declining employment in advanced technology, computing and software, which are among the economy’s main engines of growth. He pointed to the effects of the global economy, artificial intelligence and the declining standing of the Israeli economy.
He also raised concerns that international sanctions could expand to include the banking sector, after Britain and other countries announced sanctions against Israeli companies operating in the West Bank or contributing to the occupation.
Shhadeh noted that Prime Minister Benjamin Netanyahu had spoken about the possibility of Israel becoming a “Sparta” model — a state relying on its own capabilities and domestic resources. Netanyahu has also discussed the possibility of circumventing banking sanctions through cryptocurrencies, which Shhadeh said had raised concerns about the economy’s future.
On the social front, Shhadeh said reverse migration includes professionals, doctors and workers in advanced technology, potentially widening class gaps and affecting the real estate market.
Shhadeh criticized the opposition parties for lacking a comprehensive economic vision, warning that slower growth and shrinking government tools could make it more difficult to address the economic crisis in the coming years.
Source: Al-Mamlaka
