Shafaq News / With Israel’s war against Hamas costing the economy around $260 million every day, payouts to ultra-orthodox schools and other causes championed by right-wingers in the ruling coalition have set off a reckoning for Prime Minister Benjamin Netanyahu.
The conflict is taking a harrowing toll on lives. It’s also become more expensive for Israel than first predicted and is putting a strain on public finances. But it’s the controversial handouts that have set a national debate alight and kept markets on edge as Finance Minister Bezalel Smotrich prepares within days to unveil a new budget for what remains of 2023 and then present plans for next year.
Built into Israel’s expenditure program are so-called “coalition funds,” or discretionary spending earmarked to the five parties comprising Netanyahu’s government, the most religious in Israel’s history. A record 14 billion shekels ($3.6 billion) in transfers approved last May will partly go toward religious schools — some exempt from teaching subjects like English and math. Other favored projects include the development of Jewish settlements in the occupied West Bank.
While the special allotments are a fraction of the total budget for 2023-2024, they have become a marker of competing priorities at a time when Israel confronts its worst armed conflict in half a century.
The war began on Oct. 7 when Hamas, designated a terrorist organization by the US, swarmed from Gaza into southern Israeli communities and killed around 1,200 people. More than 11,000 have died in Gaza, according to the Hamas-run health ministry, since Israel began retaliatory airstrikes and launched a ground offensive.
What happens to the coalition funds may determine just how forgiving markets will be to a government that’s already seen the war inflict an economic toll of almost $8 billion, according to estimates from the Finance Ministry.
“As long as the government clings to its coalition funds, it will pay more for its debt,” says Rafi Gozlan, chief economist at IBI Investment House.
The verdict of global traders will matter as the government increasingly turns to bonds to pay for the war. Its budget deficit balloonedBloomberg Terminal more than sevenfold in October from a year earlier. The Finance Ministry has, moreover, announced plans to borrow 75% more in November than last month.
Israeli assets from the shekel to bonds have recouped most if not all their losses from the aftermath of Hamas’s attack. But an aura of risk still hangs over the government’s debt.
The cost to insure Israeli sovereign bonds against a default is more than double what it was before the war began. And the risk premium, or spread, investors demand to hold Israeli dollar notes over US Treasuries remains about 25 basis points higher.
(Bloomberg)