Israel-Hamas war to cost Tel Aviv more than $50 billion, says Israeli central bank

In what has been described as one of the most detailed assessments yet, Israel’s central bank in the latest outlook of the country’s economy published on Monday (Nov 27) laid out the economic implications of the war with the Palestinian militant group Hamas in Gaza, reported Bloomberg. The war is reportedly set to cost the country over $50 billion. 

The Bank of Israel in its outlook has also lowered the country’s economic growth projections by 0.3 per cent and 0.8 per cent for 2023 and 2024, respectively. 

‘Gross effect’

A report by Bloomberg citing an updated outlook from the bank’s research department said that the war’s “gross effect” on Israel will be as high as $53 billion (198 billion shekels), with more than half of it being spent on defence. 

Multiple reports over the past month or so by different entities have also estimated the war’s fiscal price tag around $50 billion. 

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A report by Tel Aviv-based investment banking and financial advisory firm, Leader Capital Markets, said that the war would cost an estimated 180 billion shekels ($48.5 billion) in 2023-24. 

Meanwhile, the Israeli finance ministry, as per Bloomberg, reported that the war is costing the economy close to $270 million every day.

Separately, the Calcalist financial newspaper citing preliminary finance ministry figures, earlier this month, said that the war will cost Israel $51 billion. The estimate, which equals up to 10 per cent of the country’s GDP, was premised on the war lasting between eight to 12 months. 

Growth forecast reduced, no change in key rate

Bank of Israel’s in-house research team also lowered the country’s economic growth projections for this and the next year and now expects the gross domestic product (GDP) to expand by two per cent as opposed to the previous estimates of 2.3 per cent in 2023 and 2.8 per cent in 2024.

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Meanwhile, the monetary committee left its key rate at 4.75 per cent, in line with the latest forecasts. The announcement on Monday has also been attributed as the cause of the shekel trading stronger against the dollar. 

What does the govt plan on doing?

Israel’s Finance Minister Bezalel Smotrich said that the government was readying an economic aid package for those affected by Palestinian attacks that will be “bigger and broader” than during the COVID-19 pandemic. 

While the Israeli government is still in the midst of hammering out the new budget, Governor Amir Yaron, speaking about the decision, warned about the fiscal ramifications of the war which the country would have to endure for at least a medium-term and urged caution.

“Alongside the need to provide a budgetary response to needs created by the war, in emergency times as well there is considerable importance to maintaining a responsible fiscal framework,” said Yaron, as quoted by Bloomberg. 

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He added, “It is important that the government cut new expenditures of a prolonged nature.” 

The central bank officials have also reportedly criticised the ruling government of Prime Minister Benjamin Netanyahu’s reluctance to scrap expenditure on religious programmes and West Bank settlements given they are already under pressure to raise funds to finance the war effort. 

(With inputs from agencies)