Israel's GDP, credit rating inversely proportionate to money spent on war: Report

New Delhi: Though the country's GDP is on a steady decline along with its credit ratings, a report says that the Israel-Hamas wars incurs a cost of USD 269 million per day.

Although Netanyahu has made lofty claims of eliminating Hamas during wartime, the claim comes at quite a cost, both on the human level as well as monetarily as the war is suspected to have cost Israel around USD 269 million each day since it began on October 7, an Al Jazeera report said.

In January 2024 Israel came out with a USD 15 billion budget for its war with Hamas. Prior to that in December 2023, it was clear that the funds that were assigned for the purpose were nearly not enough, as an additional USD 7.85 billion was funded through increased borrowing.

Later, Netanyahu's cabinet approved an increased budget for 2024 and allocated an additional USD 15 billion for the war. This took the estimated expenditure to over USD 22 billion but also took money away from education and healthcare consequently, which brought in severe criticism.

Additionally, in May 2024, Bank of Israel chief Amir Yaron warned the country in a statement saying that waging war against Hamas would cost USD 67 billion, in defense and civilian costs between 2023 to 2025.

Consequently, Israel's credit score has severely downgraded and its GDP has also declined.

Credit ratings agencies such as Fitch, Moody's and S&P Global downgraded Israel's credit rating in 2024, citing worsening geopolitical risks as the war drags on.

The latest downgrade of Israel's credit rating by Moody came in just after Israel conducted a major strike in Beirut, killing Hassan Nasrallah, the leader of the Hezbollah terror group. Though the timing of the Moody's announcement coincided with the military action, the agency clarified that its decision had been prepared in advance.

Israel's military spending, despite this, has been at an all-time high indicating that a further downgrade is possible.

Meanwhile, various stakeholders such as Israel, Hamas, countries like Egypt and Qatar, and Palestinians have incurred heavy losses in the process.

The Israeli government is also expected to permanently increase its military spending by close to 1.5% of GDP as compared to pre-war levels, thereby pressurising the country's budget deficit and debt levels, a Reuters report said.

Amir Yaron cautioned the government to make fiscal adjustments to prevent the budget deficit from going out of control due to the jump in defense and other war costs. Prime Minister Benjamin Netanyahu said he expected the country's rating would rise again once Israel wins the war.

"Israel's economy is strong and is functioning very well. The rating downgrade is a result of Israel dealing with a multi-front war forced upon it," Netanyahu said in a statement.

But Israel's economy says otherwise. With reduced consumer spending, exports and investments, the country's GDP has not only declined but it has also resulted in the plummeting of its overall economy.

As a result, Israel's economy only grew a meagre 2.0% in all of 2023 as compared to 6.5% in 2022.

In recent times, Israel's military spending has increased furthermore and this could lead to a further downgrade in ratings.

Actions like settler violence in the West Bank, seen by Israel’s own security services as a security threat, and the justice minister’s attempts to weaken the judiciary, have increased political instability in the country.

Moody's has warned that increased defense spending, combined with a weakened economy, would further strain public finances in the months to come.