Israel incurred a budget deficit of 22.9 billion shekels (six billion dollars) in October, which represents a more than seven-fold increase on an annual basis, according to official data from the Ministry of Finance, on Wednesday.
The Ministry attributed this deficit to the high expenditures for financing the war with the Palestinian Hamas movement in the Gaza Strip.
She added that the deficit as a percentage of gross domestic product rose during the twelve months until October to 2.6 percent, compared to 1.5 percent in September.
The ministry indicated that revenues declined by 15.2 percent last month due to tax deferrals and a decrease in social security income as a result of the war that broke out on October 7.
200 billion shekels
In turn, Yedioth Ahronoth newspaper said, “The Ministry of Finance’s initial estimate of the cost of the war on the state treasury is based on the fact that the situation will not extend for more than a year, no additional arenas will be developed, and reserve soldiers will return to work soon.”
She added: “Although it is only preliminary and very volatile, under many initial assumptions the cost will reach 200 billion shekels, or about 10 percent of GDP.”
The newspaper noted, “Given the many assumptions and uncertainty surrounding them, the Treasury Department set the figure of NIS 200 billion as an optimistic estimate.”
Long term effects
Ahmed Al-Qarout, a political economist based in London, explained to Sky News Arabia the potential effects on the Israeli economy resulting from the development of the ground operation in Gaza, which has no expected scope for its completion, and the sectors most affected by this, the mobilization of 360,000 reserve soldiers.
• One of the most important risks that the October 7 attack may cause is the damage to the Israeli economy in the short and long term, as it led to an exodus outside Israel and the cessation of people arriving there due to the security situation in the country.
• The damage to the markets had several reasons that did not depend on the call-up of reserve soldiers only, after the exit of workers from the market, including foreign workers who left, and Palestinian workers were also excluded.
• The labor shortage cannot be compensated directly by contracting with new foreign workers (usually Indian). This will not happen immediately due to the ongoing war in Gaza, and perhaps 120,000 workers will be contracted after the end of the war.
• The Israeli market needs highly qualified workers to work in technologically advanced Israeli industries, and the worker may need training for a period of 6 months or a year.
• The qualitative loss exceeded that percentage, as the technology and industry sector loses an exceptionally important part of its workforce, and these have a higher contribution to the gross national product.
• The Israeli neoliberal economy relies heavily on the private sector. Therefore, the losses are more evident in the private sector and the stock market that expresses them. It will generally be difficult to measure the losses quantitatively at this stage and even in the future, as structural losses will be difficult to measure, such as productivity losses, human losses, and moral losses. .
• Many investment deals have been canceled and suspended, and their fate remains dependent on the course of the war and its results. Most likely, these investments will be delayed or cancelled.
• If the war lasts for months, the state’s credit reduction will decrease, which will increase the cost of borrowing and slow down the recovery process, if it occurs.
• Israel will not be able to recover from the effects of the economic war except by expanding the state’s role in the economy, which will constitute a blow to the structure and nature of the economy that depends on foreign investments in hard currency, and they will be forced to restructure the economy.
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