The Cost of the War Against Hamas: Estimated at 70 Billion Shekels ($17.2 Billion) – Mitav’s Analysis

Introduction

According to Israeli investment bank Mitav, the war against Hamas is expected to cost about 70 billion shekels ($17.2 billion), which is double the cost of the Second Lebanon War. This amounts to approximately 3.5% of the country’s gross domestic product (GDP).

Economic Consequences

Metaf, the chief economist at Mitav, has divided the damages into four categories: direct costs of war, compensation for property damage, economic assistance (support for businesses and families), and loss of government income due to economic turmoil. However, it is noted that this estimate does not align with the reality. Unofficial estimates by Israel and the Ministry of Finance suggest a loss of 2-3% of GDP.

Duration and Expenses

Mitav estimates that the war is expected to last around 60 days and will be more costly than any recent conflict, including the Second Lebanon War.

Compensation and Losses

According to Mitav’s estimates, compensation for victims (both individuals and companies) is projected to reach 17 billion shekels ($4.2 billion). Additionally, the decline in GDP will result in a loss of tax revenues amounting to 31 billion shekels ($7.6 billion). The losses to tax authorities’ revenues will be approximately 1.5% of GDP, equivalent to about 28 billion shekels ($6.9 billion).

Impact on Deficit and Borrowing

As a consequence of the expected increase in the deficit, total borrowing could rise by about NIS 50 billion ($12.3 billion) by the end of the year. The assumption is that the Finance Ministry will utilize around NIS 10 billion ($2.4 billion) from cash reserves. The occupation government may try to reduce borrowing by cutting budget spending, including freezing coalition funds, but it will still need to raise about NIS 37 billion ($9.1 billion) over the last two months of the year.

Future Challenges

In 2024, the GDP deficit is predicted to be 4%, compared to the pre-war forecast of 2.5%. The Treasury will need to maintain monthly borrowing rates of about NIS 12 billion ($2.9 billion) in the local bond market and raise approximately NIS 25 billion ($6.1 billion) in foreign markets. This will result in an estimated debt-to-GDP ratio of around 62% by the end of 2024, up from the current 59%.

Economic Outlook

All of this occurs as economic growth is expected to slow down to 2.8% this year and 2% in 2024.

Source

This information is sourced from the Israeli website “calcalist”.