The price of conflict: Israel's economy has barely survived over a year of war, experts say
The general consensus of the conference was that Israel is only able to survive and thrive thanks to its national resilience and spirit of mutual responsibility.
Former Bank of Israel governor Karnit Flug. (photo credit: RONEN ZVULUN/REUTERS)BySHOSHANA TITA
The Eli Hurvitz Conference, which has taken place for the last 32 years, is considered the most prestigious and informative annual economic forum in Israel. The topics discussed reverberate in government offices. For years, the central topic of the conference, organized by the Center for Israeli Democracy, has been the low productivity in Israel as compared with the rest of the OECD.
At this year’s gathering, the chair of the conference, Prof. Karnit Flug, highlighted the fact that despite the ongoing war on seven fronts and Israel’s isolation in the world, the macroeconomic picture is positive, and there is no projection of economic collapse. She attributed this to the resilience of the economy despite the government’s policies, not thanks to it.
All the speakers in attendance stressed the importance of public spending on infrastructure in order to increase the productivity of the Israeli worker. An investment of NIS 40 billion in public transportation in 2025 can markedly improve Israel’s standing in the OECD. However, the NIS 250 billion price tag of the 600-day war has turned all fiscal calculations upside down, and infrastructure is left on the back burner.
How to fix Israel's economic dilemma
The economic dilemma is the need to balance social and military expenses. Israel cannot increase its debt without limits, and due to military expenses in a high interest rate environment, Israel’s credit rating was downgraded from A+ to A by all three financial rating agencies – Fitch, Moody’s, and S&P. The negative outlook reflects concerns about the ongoing conflicts and their impact on the Israeli economy. Thus the Bank of Israel’s recommendation to the government is to exercise fiscal prudence by cutting expenses and raising taxes. Integrating the haredim into the workforce will be crucial.
Yohanan Plesner, president of the Israel Democracy Institute, quoted the center’s study by Gabriel Gordon, which shows that only 33% percent of the haredim pay taxes, while the rest of the population does. Prof. Amir Yaron, governor of the Bank of Israel, stressed the importance of cuts in the 2025 budget to avoid an increase in the national debt and a further downgrade in Israel’s credit rating. Yaron spoke about the need to integrate the haredim into both the workforce and military service. As only half of the haredi men work, their productivity is low. The irony here is that rather than cutting subsidies to the haredim, Prime Minister Benjamin Netanyahu rewards them with coalition perks such as subsidies.
Illustration of Israeli shekels. September 24, 2023. (credit: HADAR YOUAVIAN/FLASH90)
Prof. Manuel Trachtenberg, senior professor of economics at Tel Aviv University, warned that already in 2025 Israel‘s military budget is in excess of NIS 25 billion; and, at the same time, hundreds of thousands of reservists are being recruited. The only hope for Israel, he contends, is a political change.
Prof. Zvi Eckstein, head of the Aaron Institute at Reichman University, called for an economic policy that supports growth. He called hi-tech not the motor of the Israeli economy but its battleship.
One by one, community leaders from the South and the North of Israel aired their grievances about the slow pace of rebuilding their homes destroyed on October 7. Representatives from the one million self-employed sector spoke of bearing the brunt of the economic toll of the war and the lack of clear government policy to compensate them for the ongoing loss of income in wartime.
One moving moment came when Yali Rothenberg, accountant general of the State of Israel, spoke of the unfathomable reality of our present-day existence in Israel, where in the span of one day he visited the home of “very sweet” at-risk girls badly in need of a few thousand shekels for their home, and later convened with representatives of the army, who requested an extra few billion shekels.
The heavy toll of this ongoing war does not stop with casualties, injuries, and hostages who are still kept in captivity. It is affecting the very lives and the spirit of an entire nation. The general consensus of the conference was that Israel is only able to survive and thrive thanks to its national resilience and spirit of mutual responsibility.■
Shoshana Tita is a journalist, scholar, writer, and international teacher based in the US, Spain, and Israel.
