The Israeli government has allocated nearly $1 billion in emergency funds to support settlers evacuated in the aftermath of Hezbollah's operations, which were carried out in support of the "steadfast Palestinian people in Gaza" and in solidarity with their "valiant and honorable Resistance," as well as in retaliation for Israeli assaults on Lebanon.

On Sunday, the Israeli Finance Ministry announced that the cabinet had approved a 3.4 billion shekel ($923 million) increase in this year's budget to assist evacuees through the end of 2024.

The ministry stated that this budget adjustment would be presented to the Israeli parliament for approval as soon as possible.

The decision followed Operation Arbaeen—launched in response to the assassination of martyred Commander Fouad Shokor—which targeted the central Glilot base of Israeli military intelligence (Aman section) and Unit 8200, located near Tel Aviv, as well as the Ein Shemer airbase.
 
Israeli Finance Minister Bezalel Smotrich claimed that the additional funds allocated for settlers evacuated due to Hezbollah attacks would not increase the entity’s budget deficit for this year.

Implications of continuing the war on 'Israel’s' economy: Report

The Institute for National Security Studies (INSS) in "Israel" revealed in a recent research paper that "Israel" now stands at a crossroads regarding the ongoing war on Gaza and confrontations with the Axis of Resistance, detailing that "every decision about the future will undoubtedly have significant economic consequences, especially considering that the projected budget deficit for 2024 is expected to exceed the forecast underlying the current state budget significantly."

The paper explores the economic impacts of three scenarios: continuing the war on Gaza, escalating tensions on the northern front, or securing an agreement that includes a captive release deal. The INSS report predicted that in light of the current situation, the Israeli economy is expected to record only 1% GDP growth in 2024. 

With "Israel’s" risk premium at 1.75%, continuing the war could worsen it due to rising security costs, increasing the deficit and debt-to-GDP ratio. This may lead to economic instability. In this context, the INSS explained that continuing the current situation could worsen the risk premium due to rising security costs, increasing the deficit and debt-to-GDP ratio.

"Israel" may be perceived as economically unstable, reducing the appeal of its risk assets. For 2025, low growth is expected at around 1%, with ongoing high budget deficits to fund security, potentially raising the debt-to-GDP ratio to 75% and negatively impacting "Israel’s" credit rating.

Escalations in the North

The paper emphasized the uncertainty surrounding how the next stage in confrontations would play out. However, even a scenario involving a month of intense confrontations in the North against Hezbollah alone—accompanied by unprecedented attacks on "Israel's" settlements—presents an extraordinary and highly challenging situation, it added.

In the scenario of an escalation in significant infrastructure damage, the Israeli economy could contract by up to 10% of GDP in 2024, the paper detailed.

The INSS report projected that the deficit could surge to approximately 15% to finance the war and meet essential needs, such as food, water supplies, transportation, and shelter. The contraction in GDP, combined with massive government spending, would lead to a debt-to-GDP ratio ranging between 80% and 85%.

The risk premium is expected to rise to 2.5% within a month of war, making fundraising more challenging, according to the paper.

It is crucial to consider the severe conditions that could result from a northern war, the paper stated, adding that the most significant risk lies in the potential for a drawn-out war on multiple fronts, where both sides "lack the incentive to reach a ceasefire."

The strategic benefits of such a war remain uncertain, especially when weighed against the extensive damage it could cause. Economically, this scenario is highly undesirable, making alternative exit strategies far more favorable.

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