Israel's wars are expensive. Paying the bill could force tough choices

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 Oct. 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.

The war has inflicted an even heavier toll on Gaza’s already broken economy, where 90% of the population has been displaced and the vast majority of the workforce is unemployed. The West Bank economy has also been hit hard, where tens of thousands of Palestinian laborers lost their jobs in Israel after Oct. 7 and Israeli military raids and checkpoints have hindered movement. The World Bank says the West Bank economy contracted by 25% in the first quarter.

In Israel, the war has imposed many economic burdens. Call-ups and extensions of military service threaten to crimp the labor supply. Security worries deter investment in new business, and disruptions in flights have kept many visitors away, cutting into the tourism industry.

Meanwhile, the government is paying for housing for thousands of people who had to leave their homes in the south near the border with Gaza and in the north where they were exposed to fire from Hezbollah.

One of the biggest concerns is the open-ended nature of the fighting, which has lasted more than a year. Israel's economy rebounded quickly from a 2006 war with Hezbollah in southern Lebanon. But that conflict lasted only 34 days.

Moody's Ratings cited that idea on Sept. 27, when it lowered the Israeli government's credit rating, two notches. The Baa1 rating is still considered investment grade, albeit with moderate risk, according to Moody’s.

Israel's economy is hardly collapsing. The country has a diversified, highly developed economy with a strong information-technology sector, which supports tax revenues and defense spending. Unemployment is low, and the TA-35 stock index is up 10.5% on the year.

Even amid the fighting, tech companies raised some $2.5 billion in capital during the third quarter, according to Zvi Eckstein, head of the Aaron Institute for Economic Policy at Reichman University.

Israel started the war “in the best economic condition” regarding government debt, which stood at a relatively modest 60% of GDP, Eckstein said. “We financed the war mainly with debt,” which has now risen to 62% but is still contained compared with France at 111% and in line with Germany at 63.5%.

The institute foresees debt reaching 80% of GDP, assuming the fighting does not markedly intensify and some sort of cease-fire or conclusion can be reached by the end of next year. Even then, higher defense spending is likely, especially if Israel maintains a military presence in Gaza after the war.

Israeli Finance Minister Bezalel Smotrich’s budget for 2025 foresees a deficit of below 4%, saying that will ensure that Israel’s debt burden remains stable. Smotrich said the country has a stable shekel currency, rising share prices, a tight jobs market, strong tax revenues and access to credit, and a rebounding tech sector.

Moody’s questioned the deficit figures, forecasting a 6% deficit for next year.

The credit downgrade will lead to higher borrowing costs, meaning Israelis are likely to see cuts to public services and higher taxes, said Karnit Flug, a former head of Israel’s central bank and now vice president of research at the Israel Democracy Institute.

Before the war, American military aid to Israel amounted to around $3.8 billion per year under a deal signed during President Barack Obama's administration. That comes to roughly 14% of Israel’s prewar military spending, much of which goes to U.S. defense companies.

Since the war in Gaza began and led to escalating conflict across the Middle East, the United States has spent a record of at least $17.9 billion on military aid to Israel, according to a report for Brown University’s Costs of War project that was released on the anniversary of the Hamas attacks on Israel.

Beyond strictly military aid, the U.S. has offered critical financial support for Israel during times of trouble. Congress in 2003 approved $9 billion in credit guarantees that let Israel borrow at affordable rates after the economy suffered during the so-called second intifada, or Palestinian uprising.

Some of those guarantees remain unused and could in theory be tapped to stabilize government finances if Israel faces unaffordable borrowing costs.

The government has convened a commission under former acting national security adviser Jacob Nagel, who negotiated Israel’s most recent U.S. aid package, to offer recommendations on the size of the future defense budget and to assess how increased defense spending could affect the economy.

Economist Eckstein said a budget that includes some tax increases and cuts in social spending would be needed to support a postwar rebound and pay for likely higher ongoing defense costs.

Find more coverage at https://apnews.com/hub/mideast-wars

FILE - Israeli soldiers take positions near the border with Gaza in southern Israel, on Dec. 11, 2023. (AP Photo/Ohad Zwigenberg, File)

FILE - Israeli soldiers work on tanks in northern Israel on Sept. 27, 2024. (AP Photo/Baz Ratner, File)

FILE - An oil platform in Israel's offshore Leviathan gas field is seen while an Israeli navy vessel patrols the Mediterranean Sea, Israel, on Sept. 20, 2024. (AP Photo/Ariel Schalit, File)

FILE - People at the beach in Tel Aviv, Israel, on Sept. 25, 2024. (AP Photo/Ohad Zwigenberg, File)

FILE - People sit in a bar overlooking the Mediterranean Sea at the old port of Jaffa, a mixed Jewish-Arab part of Tel Aviv, Israel, on April 26, 2024. (AP Photo/Oded Balilty, File)

FILE - A man carry breads on a board over his head at the Mahane Yehuda market in Jerusalem, on March 6, 2024. (AP Photo/Leo Correa, File)

A woman buys fruit in a local market in Haifa, Israel, on Aug. 16, 2024. (AP Photo/Leo Correa)

FILE - Cars sit at the port of Haifa, Israel, on Aug. 15, 2024. (AP Photo/Leo Correa, File)

FILE - Gantry cranes used to load and unload cargo containers from ships sit stand during the dawn, in the port of Haifa, Israel, on Aug. 15, 2024. (AP Photo/Leo Correa, File)

FILE - Israeli soldiers fire a mortar shell from southern Israel towards the Gaza Strip, in a position near the Israel-Gaza border , on Jan. 3, 2024. (AP Photo/Leo Correa, File)

FILE - Israeli soldiers from the artillery unit store tank shells in a staging area at the Israeli-Gaza border in southern Israel, on Jan. 1, 2024. (AP Photo/Leo Correa, File)

FILE - The Israeli Iron Dome air defense system fires to intercept an attack from Lebanon over the Galilee region as seen from the Israeli-annexed Golan Heights, on Aug. 4, 2024. (AP Photo/Leo Correa, File)

FILE - Israeli soldiers work on tanks in a staging area in northern Israel near the Israel-Lebanon border, on Oct. 1, 2024. (AP Photo/Baz Ratner, File)

PHILADELPHIA (AP) — Democrat Kamala Harris is out to win over suburban voters uneasy about Republican Donald Trump as she touches down in three Midwestern battleground states on Monday to hold moderated conversations with Republican Liz Cheney.

The vice president will make appearances in three suburban counties won by Republican Nikki Haley before she dropped out of the race for the GOP nomination: Chester County, Pennsylvania; Oakland County, Michigan; and Waukesha County, Wisconsin.

Harris' travel companion, Cheney, is a former GOP congresswoman from Wyoming and a fierce critic of Trump. Their conversations will be moderated by a conservative radio host and a GOP strategist.

With just over two weeks to go before the presidential election and the race a dead heat, the Democratic nominee is looking for support from every possible voter. Her campaign is hoping to persuade those who haven’t made up their minds, mobilize any Democrats considering sitting this one out, and pick off voters in areas where support for Trump may be fading.

A few votes here and there could add up to an overall win. In Waukesha County, for example, Haley won more than 9,000 primary votes even after she dropped out of the race. Overall, Wisconsin was decided for President Joe Biden in 2020 by just 20,000 votes. In-person early voting in the state starts Tuesday.

Cheney and Harris will be joined at the events by Charles Sykes, a conservative radio host and editor-in-chief of the website The Bulwark, and GOP strategist Sarah Longwell.

Cheney has endorsed Harris because of her concerns about Trump. She lost her House seat after she co-chaired a congressional committee that investigated the Jan. 6, 2021, Capitol riot. That's when a violent mob of Trump supporters broke into the building and beat and bloodied law enforcement in a failed effort to stop the certification of Biden's 2020 presidential win.

Cheney is not the only Republican to back Harris. More than 100 former GOP officeholders and officials joined Harris last week in Washington Crossing, Pennsylvania, not far from where Gen. George Washington led hundreds of troops across the Delaware River to a major victory in the Revolutionary War.

At a rally there, she told GOP voters the patriotic choice was to vote for the Democrats.

As the election draws near, the vice president has increasingly focused on Trump's lies around the 2020 election and his role in the violent mob's failed efforts. She says Trump is “unstable” and “unhinged” and would eviscerate democratic norms if given a second White House term.

“I do believe that Donald Trump is an unserious man,” she says at her rallies, "and the consequences of him ever getting back into the White House are brutally serious.”

Trump has been trying to minimize the violent Jan. 6 confrontation as he campaigns, claiming it was "a day of love from the standpoint of the millions.”

Harris will be back in Pennsylvania on Wednesday for a CNN town hall in Delaware County, where she will take voter questions.

Democratic presidential nominee Vice President Kamala Harris speaks during a church service and early vote event at Divine Faith Ministries International, Sunday, Oct. 20, 2024, in Jonesboro, Ga. (AP Photo/Jacquelyn Martin)