The Accountant General of the Israeli Ministry of Finance, Eli Rotenberg, expected that the proportion of public debt in Israel would increase to 62.1% of the gross domestic product in 2023 as a result of the financial repercussions of the war on the Gaza Strip, after expectations indicated a decline of 1% on an annual basis to 59% before the operation. The Al-Aqsa flood, launched by the Palestinian resistance led by the Al-Qassam Brigades on October 7, according to the Israeli economic newspaper Globes.
Only initial damage
Although Rotenberg’s prediction is better than other analysts’ expectations that debt will rise to the level of 63% of GDP, the percentage will only reflect the initial damage to Israel’s economy as a result of the ongoing war on the Gaza Strip, according to the newspaper.
The debt-to-GDP ratio is expected to continue to rise during 2024, but the big question that confuses markets and rating agencies is: How much will it rise?
In order for the debt-to-GDP ratio to stop rising, the fiscal deficit – which currently stands at 4.2% – must be narrowed to 3%, but according to the revised 2024 budget, where the government estimates the deficit will rise to 6.6%, no recovery is expected before a year. 2025 in the best scenarios, according to the newspaper.
At the height of the Corona pandemic, Israel’s debt-to-GDP ratio jumped from 58.8% in 2019 to 70.7% in 2020. But this time, the Accountant General believes that the number will not reach 70% before it declines.
At the end of last year, Israel’s debt amounted to 1.12 trillion shekels ($299.18 billion), up from 1.03 trillion shekels ($275.13 billion) at the end of 2022, due to the burdens accumulated as a result of the war.
shrinkage
Last week, the chief economist of the Ministry of Finance in Israel, Shmuel Abramson, expected that its economy would contract by 1.5% if the war on the Gaza Strip continued until the end of the current year, after he had expected growth of 2.7% for the year 2024 before the war began, according to a report carried by Globes.
According to the basic scenario that expects the war to end next February, Abramson – according to his report – expects the Israeli GDP to grow by 1.6% during the current year, with a contraction in terms of per capita terms.
The basic scenario assumes that the war on the Gaza Strip will continue for 5 months, ending next February.