Israel sees $50.4 billion budget deficit in 2020 — largest in history

Amid severe economic conditions caused by pandemic, Finance Ministry also forecasts GDP contraction of 3.3%

Finance Minister Israel Katz holds a press conference at the Finance Ministry in Jerusalem on July 1, 2020. (Olivier Fitoussi/ Flash90)
Finance Minister Israel Katz holds a press conference at the Finance Ministry in Jerusalem on July 1, 2020. (Olivier Fitoussi/ Flash90)

Israel’s budget deficit for the year 2020 was its highest ever, at NIS 160.3 billion ($50.4 billion), or 11.7 percent of its GDP, the Finance Ministry said Monday.

The huge deficit — some three times higher than that of 2019 — was expected, due to the severe economic effects of the coronavirus pandemic.

Percentage-wise, the deficit is one of the highest in the world, expected to be surpassed only by those of the US, Canada, the UK, Iceland, and Australia, the Ynet news site reported.

Despite the soaring deficit, the Finance Ministry reported that GDP only dropped by some 3.3% — a better state of affairs than had been feared.

Last week, the Bank of Israel kept its benchmark rate at an all-time low of 0.1%, saying that the fast pace of inoculation against the coronavirus pandemic “increases optimism regarding a rapid return of the economy to a path of growth in the coming year.”

The central bank said that the GDP is expected to grow by 6.3% in 2021, and the broad unemployment rate is expected to decline during the year to 7.7% of the labor force in the fourth quarter of 2021 — assuming the rapid inoculation continues.

Israelis wait to receive a COVID-19 vaccine at a vaccination center operated by the Tel Aviv Municipality with Tel Aviv Sourasky Medical Center (Ichilov), at Rabin Square in Tel Aviv, December 31, 2020. (Miriam Alster/ Flash90)

In 2022, GDP is expected to grow by 5.8%, the unemployment rate is expected to continue to decline to 5.4%, and the debt-to-GDP ratio is expected to be 75%.

If inoculation slows down in Israel, and continues until the middle of 2022, GDP is expected to grow by 3.5% in 2021, and the broad unemployment rate is expected to decline to about 11%. In 2022, GDP growth is expected to be 6%, while unemployment is expected to decline to 7%, and the debt to GDP ratio in 2022 is expected to be 82%.

“In view of the fast pace of inoculation, it seems that, currently, the rapid inoculation scenario is significantly more likely to play out than the slow scenario,” the central bank said in a statement last week.

Israel has already given a first dose of the Pfizer-BioNTech vaccine to more than 1.5 million people, the world’s fastest pace of inoculation. Prime Minister Benjamin Netanyahu has also said all Israelis over the age of 16 could get the vaccine by the end of March.

Even so, the nation has entered its third lockdown this year, and the pandemic is continuing to spread, with 71,557 active cases in the country as of Monday evening and 6,897 new cases confirmed the previous day.

Of them, 1,065 were in serious condition — the figure surpasses 1,000 for the first time this week — including 262 on ventilators and 326 in critical condition.

According to the Health Ministry, 7.2% of tests returned positive on Sunday, the highest rate in months. The death toll stood at 3,695.

Shoshanna Solomon contributed to this report.

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