Citing Israel’s Finance Ministry, a Reuters report said: Israel has raised about 30 billion shekels ($7.8 billion) in debt since the start of the conflict with Hamas.
According to the ministry, $4.1 billion of that amount was dollar-denominated debt raised in issuances in international markets.
On Monday, the ministry reportedly raised another $957 million in the local market in its weekly bond auction. Officials claimed that the government can now “fully and optimally finance all its needs.”
The Israeli government has significantly increased expenses in order to fund the military and to compensate businesses near the border with Gaza, as well as the families of victims and hostages taken by Hamas. All of this has led to a record budget deficit, which last month ballooned to $6 billion, a more than sevenfold increase compared to one year ago.
The Israeli Finance Ministry has also announced plans to borrow 75% more in November than last month. Meanwhile, Bank of Israel Governor Amir Yaron has called on the government to balance “supporting the economy and maintaining a sound fiscal position.”
Israeli Prime Minister Benjamin Netanyahu’s vow to “open the taps” to help those impacted by the conflict with Hamas will sharply drive up the deficit and debt-to-GDP ratio through 2024, economists believe.
Last month, international credit rating agency S&P cut Israel’s rating from ‘stable’ to ‘negative’.
Moody’s Considers Downgrading Israel
International ratings agency Moody’s on Thursday placed Israel’s A1 credit rating on review for a possible downgrade, according to a statement published on the agency’s website.
The potential further escalation of hostilities between the Israeli Defense Forces (IDF) and Hamas was cited as the cause for review.
“Israel’s credit profile has proven resilient to terrorist attacks and military conflict in the past. However, the severity of the current military conflict raises the possibility of longer lasting and material credit impact,” Moody’s stated.
The agency said it will focus its review on assessing how the duration and scale of the conflict impacts Israel’s economy, institutions, and public finances. It noted that the inspection may take longer than Moody’s traditional three-month period.
“While a short-lived conflict could still have credit impact, the longer lasting and more severe the military conflict, the greater its impact is likely to be on policy effectiveness, public finances, and the economy,” Moody’s stated.
Fitch
Earlier this week, another rating agency, Fitch, placed Israel’s A+ sovereign credit score on ‘rating watch negative,’ also citing the crisis in Gaza. It warned that a significant escalation and expansion of the conflict to other countries in the Middle East could significantly deteriorate Israel’s credit metrics.
International rating agencies have never downgraded Israel. A downgrade could hamper the country’s ability to borrow abroad, which would, in turn, impact Israel’s future growth plans.
The conflict escalated this month after the Palestinian militant group Hamas launched a surprise incursion into southern Israel. Israel responded by intensifying its blockade of Gaza and conducting a bombardment.
The escalation has caused a surge in global oil prices due to fears over potential supply disruptions in the region. According to Bloomberg Economics projections, oil prices may surge to $150 per barrel if the conflict spreads to the broader Middle East, while the global economy would fall into recession.
Economic Cost Of Iran-Israel Conflict
The global economy would fall into recession with oil prices skyrocketing if Iran were to get involved in the Israel-Palestine conflict, Bloomberg reported this week.
According to Bloomberg Economics, analysts are viewing the impact on global growth and inflation under three potential scenarios: with hostilities largely confined to Israel and the Palestinian territories; with the conflict spreading to Lebanon and Syria; and with a direct confrontation between Israel and Iran.
While all the three scenarios are likely to cause a surge in oil prices, higher inflation and slower global economic growth, a full-blown war between Iran and Israel would cause the most damage, analysts say.
“The wider the conflict spreads, the more its impact becomes global rather than regional. Conflict in the Middle East can send tremors through the world because the region is a crucial supplier of energy and a key shipping passageway,” they wrote.
In that event, oil prices could spike to $150 a barrel. Global inflation would be likely to surge to 6.7% from the current IMF 2024 forecast of 5.8%. Global growth would be likely to shrink by 1% from the current projections for next year, to 1.7%. This would be the worst figure since 1982, and, in monetary terms, would cost the global economy roughly $1 trillion.
“The spare production capacity in Saudi Arabia and the UAE may not save the day if Iran decides to close the Strait of Hormuz, through which one-fifth of the world’s daily oil supplies pass. There’d also be a more extreme risk-off shift in financial markets,” analysts warn.
The effects would be felt quickly, analysts claim, because many countries are still battling inflation caused by the West’s Ukraine-related sanctions on Russia, which have reoriented global trade, including oil and gas flows. They warn that another war in an energy-producing region could push the global economy into a recession.
Bloomberg notes, however, that a direct conflict between Iran and Israel is still “a low probability scenario.”
This month’s hostilities between Hamas and the IDF has already caused a surge in global oil prices. International benchmark Brent crude futures for December delivery closed at $90.8 per barrel on Friday, up from roughly $84 per barrel a week before.
