The arrest warrants against Israeli leaders could lead to a long-term economic downturn if investor confidence is not restored quickly.
The reliance on foreign investment makes Israel's economy particularly vulnerable to international legal and political developments.
The ongoing geopolitical tensions in the region are likely to exacerbate economic challenges for Israel, especially in light of rising interest rates globally.
If the political and legal challenges continue, Israel may see further declines in foreign investment and increased economic isolation.
The Israeli government may need to implement significant economic reforms to regain investor trust and stabilize the economy.
Continued instability could lead to a prolonged recession, impacting social services and public welfare in Israel.
Israel's economy faces significant threats due to international arrest warrants issued by the International Criminal Court (ICC) against Prime Minister Benjamin Netanyahu and former Defense Minister Yoav Galant. According to a report by the Israeli newspaper Calcalist, these legal actions could destabilize Israel's economic standing globally, as they may deter foreign investment and impact the country's credit rating. The Standard & Poor's credit rating agency has already flagged these ICC developments as potential risks to Israel's financial stability.
The report highlights that Israel's economy is heavily reliant on exports, which account for about 30% of its gross domestic product (GDP), and that 80% of its capital comes from foreign sources. The arrest warrants could exacerbate internal political tensions and geopolitical instability, leading to increased bond yields, a depreciating shekel, and declining capital markets. Foreign ownership of Israeli government bonds has already decreased from approximately 15% to 9% since the onset of conflict on October 7, 2023.
Calcalist warns that the rising debt-to-GDP ratio, which has surged to 70% from 60% at the start of 2023, coupled with the ongoing war in Gaza and Lebanon, has resulted in an additional 11 billion shekels ($3 billion) in interest payments. The report stresses the urgent need for the Israeli government to restore international investor confidence, noting that the loss of such confidence could take years to rebuild, especially amid escalating calls for boycotts against Israel.
