Israel's economy faces strain and rising borrowing costs post-year of war

From Investing.com: 2024-10-06 10:41:12

Israel’s economy is feeling strained due to rising borrowing costs following a year of war with potential regional conflict. The cost to fund the war in Gaza amounted to 100 billion shekel ($26.3 billion) through August, with further estimated costs of 250 billion shekel by the end of 2025. Credit ratings downgrades, high debt insurance costs, and ballooning deficits are impacting the economy.

Israel’s debt-to-GDP ratio is at 62%, but borrowing needs have increased significantly. The government is confident that the economy will rebound after the war ends, attributing the rising costs to factors like extensive troop mobilization and air defense expenses. However, concerns over the war’s conduct are leading to decreased interest from investors, reflected in widening bond spreads.

Foreign investors are pulling back from Israeli bonds and equity markets due to geopolitical concerns and uncertainty. Norges Bank sold off Israeli government bonds in 2023 because of increased market uncertainty. Israel’s domestic bond market remains strong, but the market share held by non-residents has declined, signaling a shift towards local investment amid global uncertainties.

The need for local investment and government support is growing in Israel, given the declining foreign investment and economic pressures. To boost the tech sector, the government pledged $160 million in public funding for venture capital. Worker shortages, displacements from the war, and restrictions on Palestinian workers are hindering sectors like agriculture and construction, affecting economic growth.

Israel continues to raise money on international markets, selling billions in debt and targeting record hauls through Israel Bonds. However, rising borrowing costs, coupled with economic pressures, pose challenges for the country’s financial stability. Local investors are looking for government efforts to consolidate finances amid ongoing economic strain.



Read more at Investing.com: Analysis-Year of war creates cracks in Israel’s borrowing strength By Reuters