Israel’s wars are expensive; Paying the bill could force tough choices

Israel's economy faces strain from escalating military spending, leading to concerns about long-term economic impact and financial stability.

On top of the grievous toll in human life and misery, Israel’s war against the Hamas and Hezbollah militant groups has been expensive, and the painfully high financial costs are raising concerns about the long-term effect of the fighting on the country’s economy.

Military spending has ballooned, and growth has stalled, especially in dangerous border areas that were evacuated. Economists say the country could face declining investment and higher taxes as the war strains government budgets and forces tough choices between social programs and the military.

Here is a look at the monetary costs Israel faces as a result of the conflict:

The Israeli Government is spending much more per month on the military, from $1.8 billion before Hamas started the fighting by attacking Israel on October 7, 2023, to around $4.7 billion by the end of last year, according to the Stockholm International Peace Research Institute.

The Government spent $27.5 billion on the military last year, according to the institute, ranking 15th globally behind Poland but ahead of Canada and Spain, all of which have larger populations. Military spending as a percentage of annual economic output was 5.3%, compared with 3.4% for the United States and 1.5% for Germany. That pales in comparison to Ukraine, which spent 37% of its GDP and more than half its entire government budget on fighting off Russia’s invasion.

In the three months after Hamas attacked, Israel’s economic output shrank 5.6%, the worst performance of any of the 38 countries in the Organization for Economic Cooperation and Development, a group of mostly rich nations.

The economy partly rebounded with growth of 4% in the first part of this year but grew only 0.2% in the second quarter.