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Cost of Conflict: Israel Faces Economic Strain After War with Hamas

Israel’s recent conflict with the Hamas militant group is projected to impose a hefty financial burden, with the country’s central bank estimating a cost of approximately 197 billion shekels ($53 billion). The Bank of Israel breaks down this sum into various components, including 107 billion shekels for defense expenditures, 22 billion shekels for damage compensation, and 25 billion shekels for other civilian expenditures.

The forecast also includes 8 billion shekels in interest on government debt and a significant 35 billion shekel loss in tax revenue due to the conflict. The prediction assumes that the direct impact on Israel’s economy will persist into 2024, albeit with decreasing intensity. Consequently, the forecasted GDP growth for 2023 and 2024 has been revised downward to 2 percent, indicating potential economic challenges ahead.

As a result of these expected high expenses and reduced tax collection, the Bank of Israel anticipates an increase in the government’s debt from 60.5 percent of GDP in 2022 to 63 percent in 2023 and a further rise to 66 percent by the end of 2024.