The figure is certain to climb further with the expansion of the war drive to Lebanon, raising the spectre of further downgrades in that country’s credit rating and the socioeconomic impacts that will be felt for years to come.
Debt servicing costs to forestall default have reached their highest in 12 years as the budget deficit widens. According to Sergey Dergachev, portfolio manager at Union Investment, one of Germany’s longest established asset management firms, Israel’s sovereign debt metrics will continue to deteriorate, placing additional pressure on its credit rating. Standard & Poor’s has already downgraded Israel’s long-term rating from A+ to A due to security risks since it began its escalation against Lebanon.
The high costs of war have led to a sharp rise in Israel’s borrowing, which has pushed the debt-to-GDP ratio up to 67 per cent. The general budget deficit now stands at 8.3 per cent of GDP. The investor base in Israeli debt securities has shrunk in tandem, due to concerns over the war’s environmental and social impacts. A Norwegian Bank sold off a holding in Israeli government bonds in 2023 “given increased uncertainty in the market,” according to a spokesperson for Norway’s sovereign wealth fund. Trang Nguyen, global head of Emerging Markets Credit Strategy at BNP Paribas, cited further economic indicators reflecting growing doubts about the health of the Israeli economy.
According to the United Nations Conference on Trade and Development (UNCTAD), foreign direct investment into Israel dropped by 29 per cent year-on-year in 2023, its lowest level since 2016.
Meanwhile, the Israeli economy is experiencing a rising tide of grassroots boycott globally, including from within the EU, Israel’s largest trading partner. Earlier this month, the Israeli political economist Shir Hever warned, “the economic crisis will only get worse and worse. There is no prospect for recovery.”
* A version of this article appears in print in the 24 October, 2024 edition of Al-Ahram Weekly
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