#Israel’s debt crisis is spiraling…

#Israel’s debt crisis is spiraling toward disaster, driven by a relentless, costly war with #Gaza and #Lebanon that has added an estimated $67 billion to national expenditures. This spending frenzy is forecast to push Israel’s debt-to-GDP ratio to an unprecedented 90% by the end of 2024, with the consequences rippling through every layer of Israeli society. The economic impact is dire, and the long-term financial trajectory signals a potential collapse.

Explosive Debt Growth and Fiscal Damage

The war has widened Israel’s fiscal deficit to an expected 7.2% of GDP by year-end, up from an already concerning 2.6%  . Defense and social aid costs, combined with emergency support for displaced civilians, are driving Israel deeper into debt. Israel’s central bank has had to double national borrowing just to keep up with these expenses . Servicing this new debt will increasingly consume Israel’s budget, leaving little for essential public services, and necessitating tax hikes that will squeeze already strained households. This debt trap could cripple Israel’s economic flexibility for decades.

Credit Downgrades: A Warning Sign

Credit rating agencies have responded sharply, with #Fitch, #S&P, and #Moody’s downgrading Israel’s ratings or putting the country on negative watch. Moody’s now rates Israel at “Baa1” with a negative outlook, just above junk status, warning of multi-notch downgrades if the conflict with Gaza drags on or continues escalating with the Lebanese resistance #Hezbollah. These downgrades signal plummeting investor confidence, making borrowing even more costly and limiting Israel’s access to global capital markets. Any further escalation could trigger another downgrade, pushing Israel’s borrowing costs sky-high and deterring critical foreign investment.

Economic Implosion Across Key Sectors

The impact of this crisis reaches far beyond military expenses. Israel’s tech sector—long the economy’s powerhouse, responsible for half of its exports—has seen investments plummet by 60% in early 2023, even before the conflict erupted . Foreign investors are pulling back, fearing political and economic instability. Meanwhile, 250,000 Israelis are now displaced by the conflict, creating a massive need for emergency housing, healthcare, and subsidies, all of which are pushing inflation higher and stretching government resources thin.

Currency and Inflation Pressures

With the Israeli #shekel weakening, #inflation is accelerating as imports become costlier. As the Bank of Israel raises interest rates to counter this inflation, the cost of borrowing for businesses and consumers skyrockets, squeezing disposable income and slowing economic growth. This inflationary spiral further burdens households already facing cuts in public services due to budget constraints  .

Poverty, Inequality, and Social Decay

As Israel tries to stabilize its finances, austerity will be inevitable. This means higher taxes and cuts to critical social services like healthcare, education, and welfare. The poorest and most vulnerable Israelis will bear the heaviest burden, widening an already alarming income gap. Tens of thousands risk falling into poverty, deepening social divisions and weakening the foundations of Israeli society  .

Risk of Default and Economic Isolation

If the crisis continues unchecked, Israel may face a technical default in the future, a scenario where interest payments alone could overwhelm the budget. With debt projected to stay at 6-7% of #GDP through 2025, austerity measures may not suffice to contain the fiscal bleeding. Any further escalation, such as a full-scale confrontation with Hezbollah or Iran, could lead to multi-notch downgrades, crippling Israel’s ability to finance itself internationally  .

A War that Destroys Both Sides

This debt crisis is not just an economic catastrophe; it’s a moral one. Israel’s leaders are mortgaging their country’s future to fund a war that is tearing both Israelis and Palestinians apart. This isn’t “security”—it’s a reckless descent into ruin. Israel’s occupation is not only strangling Gaza but is bleeding Israel itself, transforming economic strength into vulnerability, prosperity into poverty, and security into permanent instability.

Without a dramatic shift, this crisis threatens to bind future generations in debt, poverty, and division, all in the name of a war that neither side can win.