The surprise attack near the Gaza Strip is a fatal blow to national security, Israel's deterrent power and national resilience. In these difficult times, our soldiers on the front lines are fighting to restore Israel's security resilience. Our role on the home front is to fight to restore the country's economic strength.
The natural and immediate response to the disaster on Saturday two weeks ago was a halt in economic activity, except for essential activity for the emergency economy. The spirit of volunteerism and mobilization of civil society on behalf of the residents of the Gaza envelope and the soldiers is a testament to civilian resilience, and compensates for the failure of the state to deal with the challenges in real time.
Bank of Israel Building, Photo: Oren Ben Hakon
However, halting economic activity carries a heavy economic price, beyond the direct cost of the war itself. The unprecedented mobilization of 300,<> reservists means that one out of every ten households in Israel has one breadwinner recruited. At the same time, the work capacity of the families remaining on the home front has been impaired due to the emergency routine, the closure of educational institutions, enlisted family members, and support for the families of the murdered, killed, abducted and wounded.
Israel's economy is a critical component of our national resilience. Therefore, in parallel with the fighting, the challenge of the government, the business sector and the public on the home front is to restart the economy and prevent a situation in which the security crisis also turns into a severe economic crisis. In order to restore national economic resilience, emergency mobilization by the government, the Bank of Israel, and the public is required.
The government must change national priorities. Increasing defense spending, rehabilitating the communities and residents of the Gaza envelope, and compensating those injured must coincide with an economic policy to return the economy to a path of growth. In times of emergency, the deficit and inflation targets become secondary to the economic growth target.
The main economic goal must be the allocation of government budgets, including coalition budgets, to a budget that encourages growth and a more equitable distribution of the burden on the public.
Drive investment and growth
Equality of burden is a critical component of Israel's economic resilience. In Israel today, there are about half a million families whose loved ones bear the security burden in the regular army, reserve army and security forces, and also bear a heavy economic burden. The government's duty at this time is to formulate an emergency budget that includes a more equitable distribution of the burden on the general public, at least from the economic side.
War has a heavy economic price, but we must come out of it with an economy with strong foundations.
The instinct in times of emergency is to stop investments and converge within ourselves, but the economic commitment to restoring national economic resilience is the opposite, requiring government support to increase and accelerate investments in infrastructure, rebuild communities near the Gaza Strip, accelerate investments in Israeli industry, and strengthen small and medium-sized businesses.
Minister of Finance Smotrich,
The Ministry of Finance's plan does not meet the challenges of the economy, and does not create the economic engines required to return the economy to a path of growth.
The Bank of Israel left the interest rate unchanged, even though it was necessary to act immediately to reduce it, in order to encourage investment and return the economy to a path of growth. The Bank of Israel's high interest rate is intended to cool the economy and is not suitable for the economic conditions following the war. There is currently no problem of demand-side inflation in Israel.
The public must also mobilize, return as much as possible to an emergency routine and help restart the economy. Despite the pain and loss, a return to an emergency routine of studies, work and consumption is essential to rebuild the economy and restore the country's economic resilience.
The author is Chief Economist, BDO
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