Funding the war with Hamas doubles Israel’s borrowing in 2023

Israel’s war with the Hamas terror group led to a doubling of the country’s borrowing last year, the Finance Ministry said on Monday.

Israel raised NIS 160 billion ($43 billion) in debt in 2023 – half of it, NIS 81 billion, since the outbreak of the war on October 7, the ministry said in a report. It raised NIS 63 billion in all of 2022.

Israel is more than six months into a war in Gaza after the brutal Hamas-led onslaught on Oct. 7, in which Palestinian terrorists killed some 1,200 people, mostly civilians, and took 253 as hostages into the Gaza Strip.

Accountant General Yali Rothenberg said that 2023 was a challenging year that required a sharp increase in financing needs and “required tactical and strategic adjustments” in the government’s debt raising plan.

“Despite the many uncertainties and challenges, the ability to raise debt in local and global markets, even in times of war, in significant volumes and very high coverage ratios, shows the high accessibility of the State of Israel to the markets and is evidence of the strength of the Israeli economy,” he said.

Total debt amounted to 62.1% of the gross domestic product in 2023, up from 60.5% in 2022 due to the spike in war spending, and is expected to reach 67% in 2024.

Israel last month raised a record $8 billion in its first international bond sale since the Oct. 7 Hamas onslaught, with very high demand even after Moody’s gave Israel its first-ever sovereign credit rating downgrade in February.

The government in 2023 raised some NIS 116 billion, or 72% of the total, domestically, with 25% borrowed overseas and the rest in local non-tradable debt.

As a result, public debt grew 8.7% last year to NIS 1.13 trillion, partly boosted by higher inflation and interest rates, the ministry said.

Interest expenses-to-GDP ratio was unchanged last year at 2.4%.

In its credit ratings downgrade to A2, Moody’s cited material political and fiscal risks for the country from its war with Hamas.

Lawmakers a month ago gave their final approval to an amended 2024 state budget that added tens of billions of shekels to fund the war with Hamas, with extra spending on defense and compensation to households and businesses hurt by the ongoing fighting.

Expenditure for the years 2023-2024 increased by NIS 100 billion due to the costs of the war, the Bank of Israel said in a report.