The path to a fragile ceasefire deal between Israel and Hamas in Gaza proved hard enough. The governance and economic aftermath of a lengthy war could prove even harder.
No one is sure who’ll hold the reins of power in battle-scarred Gaza or where the vast resources for post-war reconstruction will come from.
Major General Yaakov Amidror, a former national security adviser to prime minister Benjamin Netanyahu, says Israel has successfully extinguished the ‘ring of fire’ with which Iran surrounded Israel by deploying proxies: Hezbollah in Syria and Lebanon, Hamas in Gaza and the Houthi in Yemen.
The 15-month campaign in Gaza, which saw the capabilities of Hamas decimated but not eliminated, has been at a huge economic cost. Major General Amidror, in a post-ceasefire webinar, estimated that the cost of rebuilding Gaza will reach $50billion (£41billion).
Speaking to US broadcaster CNBC in Davos, the governor of the Bank of Israel Amir Yaron expressed hope that the ceasefire deal ‘is a turning point away from October 7, that horrible day’.
He added: ‘It should pave the way for rehabilitation… growth which will help the region’.
Reduced to rubble: No one is quite sure who will hold the reins of power in battle-scarred Gaza or where the vast resources for post-war reconstruction will come from
Israel itself faces a £20billion bill for restoring homes, farms, kibbutzim and infrastructure in the north, close to the Syrian and Lebanese borders.
Some 80,000 people, Jews and Israeli Arabs, were evacuated to safer locations further south.
Hezbollah rocket fire damaged and destroyed schools, homes, farm buildings and other infrastructure. Israel also faces a muti-billion cost of helping to restore southern villages and towns bordering Gaza such as Kibbutz Be’eri where more than 100 people were slaughtered on October 7, 2023.
The source of finance for reconstructing Gaza, if some kind of administration can be restored, is unknown.
In the past, gas-rich Qatar, which hosted ceasefire talks, has been a lead donor.
It has paid towards infrastructure and been permitted by Israel to distribute cash directly to Palestinian citizens.
For the moment the focus in Gaza, as populations return to their homes (or what remains of them), is humanitarian aid.
Funds are being made available by charities and UN-backed organisations to restore hospitals and health centres and provide critical fuel and food supplies.
Some 2,400 trucks, corralled by UN agencies, had entered Gaza by midway through the week following the ceasefire.
Israel’s economy was in good shape at the start of its longest-ever military operation. Unemployment was just 3 per cent, the debt to national output ratio was 60 per cent and on a declining path.
The country held $200billion (£161million) of official reserves.
By the standards of most of the G7 wealthy nations, where the ratio of debt to national output is at or close to 100 per cent, it was relatively well placed. Debt soared over the last year to 69 per cent of GDP.
The economy is extraordinarily resilient because of the dominance of the hi-tech sector, which contributes an astonishing 18 per cent of annual output.
Much of the cost of the conflict was covered by increasing state borrowing. Some has been met by higher taxes and public spending cuts, with budgets allocated to the 2m or so residents of Arab communities inside Israel among those reduced.
Humanitarian aid: Italian Air Force personnel load up packages for Gaza at a military base in Zarqa, Jordan on Wednesday
The cost of deploying civilian reservists, who dropped out of the workforce, is put at $3billion (£2.5billion). At present, the construction sector faces serious problems in rebuilding facilities because of the absence of Palestinian workers from the West Bank and (to a lesser extent) Gaza.
The ceasefire immediately has improved prospects for Israel to meet its budget shortfall.
Since the ceasefire the credit agency Moody’s has said the accord ‘will reduce the downside to Israel’s finances’. Fitch agrees but notes the fiscal position is weaker than before the war.
If the ceasefire holds it says the negative risks to the country’s ‘A’ sovereign rating on global markets could be reduced.
Central bank governor Yaron, a former professor of economics at the Wharton Business School in Pennsylvania, in the US, is hopeful of bringing down interest rates in the second half of the year, but first he wants to see inflation, currently 3.2 per cent, back within the 1 per cent to 3 per cent range.
Yaron’s presence in Davos, and his confidence about restoring fiscal stability and lowering interest rates show a degree of optimism about Israel’s prospects which has been absent.
It demonstrates that intense activity by the Palestinian-inspired Israel boycott movement, around the globe, may have done less lasting damage than feared.
The world needs Israel’s advanced autonomous driving, telecoms, chip design and energy tech.
Restoring economic normality in Gaza after a harsh and destructive bombing campaign is more difficult, not made any easier by the breakdown of relations between Jerusalem and Palestinian refugee agency UNRWA.
The best hope must be for a durable peace and a provisional Palestinian administration in Gaza.
That would help to unlock a Gulf-led effort, with Trump administration backing, to at the very least restore the territory’s broken infrastructure.
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