Fitch has downgraded Israel's credit rating and added a negative outlook, joining Moody's and S&P, which had done so earlier. The main reason is, of course, the war. The agency predicts that the permanent costs of the war will increase by about 1.5%. This reality is not just a byproduct of a prolonged war but a deliberate target of Israel's enemies, who view the resilience of Israeli society as a product of economic prosperity and social cohesion, thus seeing it as the Achilles' heel of national security.
Israel is not managing an economically sustainable long-term war. With a widely mobilized reserve force, no tourism; a shortage of foreign workers in agriculture and construction; boycotts; and the fact that our interceptors are vastly more expensive than the cheap flying munitions of our enemies, it is clear that without a change in direction, the Israeli economy is at risk of collapse.
One might have expected that ten months into the war, Israel would make an effort to develop a strategy regarding its economic preparedness for a prolonged war. At the very least, the state budget and economic management should reflect a pragmatic approach. Since this is not the case, Fitch mentioned that political polarization and coalition needs are factors that influenced its negative outlook. The current government's budgetary considerations are still very political and sectoral, reflecting a real negligence.
Economic preparedness for a prolonged war should stem from recognizing the importance of nurturing national resilience. However, instead of revisiting priorities, the government is mainly addressing the economic challenge by making across-the-board cuts that harm education, health, and welfare, meaning that the measures intended to supposedly strengthen the economy actually harm essential components of resilience.
It is obvious that Israel must formulate a responsible state budget, invest in growth engines and infrastructure, cut unnecessary investments for the time being, and rebuild fiscal reserves, while simultaneously investing in social needs that have increased due to the war. It is also clear that the continued avoidance of military service and the workforce by many Haredim will remain an unbearable burden on the economy and society.
The challenges facing Israel are extreme and require unconventional thinking patterns. The defense budget structure was designed in a different reality of threats, so it reflects a mindset that attributes almost exclusive importance to military armament. However, today, the resilience of society is also being tested. Apart from some studies dealing with functional continuity and defining essential enterprises (for the military-security system), as far as we know, there is no comprehensive work and rethinking of Israel's security, economic, political and diplomatic preparation for a long period of instability and disruption.
Considerable work is required to better prepare Israel for a prolonged period of attrition warfare at varying intensities, including a crucial focus on economic preparation. One of our tasks at Atchalta is to help formulate an effective strategy to address this challenge.
One of Israel's structural difficulties as a liberal democracy in dealing with emergencies is the difficulty in legislating exceptions to rights and obligations based on unique needs. However, there is no choice but to make a limited exception for reserve duty members who are outstanding in creating resilience or economic value—like 'outstanding athletes.' Of course, such a move should complement the necessary steps to increase the participation of the Haredi population in the burden and significantly reward the reservists who bear the burden.
Israel will not be able to win this war unless it fosters its resilience, which lies in finding the balance between the needs of war and the need to maintain a thriving economy; in English, it sounds better: War Life Balance.
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