Bank of Israel chief urges government to set ‘appropriate’ fiscal priorities in budget

Sharon Wrobel is a tech reporter for The Times of Israel.

Bank of Israel governor Amir Yaron attends a Finance Committee meeting, in the Knesset in Jerusalem on January 30, 2024 (Yonatan Sindel/Flash90)
Bank of Israel governor Amir Yaron attends a Finance Committee meeting, in the Knesset in Jerusalem on January 30, 2024 (Yonatan Sindel/Flash90)

Bank of Israel Governor Amir Yaron urges the government to establish “appropriate” fiscal priorities in the state budget considering the need for higher defense spending in coming years, stressing the importance of “responsible” economic policy while dealing with current challenges of the war.

“During the war, the government implemented an expansionary policy” related to “the costs of the fighting, programs supporting households from the conflict areas, and assistance for workers and businesses across the country,” Yaron says in a letter sent to the government alongside the Bank of Israel’s annual report for 2023. “Looking ahead, the economy is facing significant challenges deriving from the war, in addition to structural challenges related to fundamental problems that have existed for some time already.”

In the annual report, the Bank of Israel notes that the budget increase for the years 2023-2024 to finance the costs of the war, which was sparked by the Hamas onslaught on October 7, has already reached NIS 100 billion.

Yaron calls for the establishment of a committee to determine the size of the defense budget in light of the growing security challenges.

“It should delineate Israel’s defense needs in the coming years and formulate an appropriate multiyear budget program that will take into account all the ramifications on the economy,” says Yaron. “It is important that if there is an additional increase in that budget, beyond what was already decided, it should be accompanied by fiscal adjustments that will at least prevent an enduring increase in the public debt-to-GDP ratio.”

Yaron notes that Israel entered the war with good economic fundamentals such as a low public debt-to-GDP ratio and high foreign exchange reserves, as well as low unemployment.

“The low debt-to-GDP ratio in Israel is a strategic asset, and the level of this ratio just before the war facilitated the economy’s dealing with the immediate fiscal ramifications of the war and illustrated once again its importance in the economy’s resilience to shocks,” Yaron says.

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