Netanyahu kicks off 2025 high-level budget talks as war costs push up deficit
Senior economic officials including Bank of Israel governor and finance minister discuss spending, with Smotrich under pressure to maintain fiscal responsibility
Prime Minister Benjamin Netanyahu and senior economic officials held their first high-level meeting on the 2025 state budget on Monday, which they seek to get approved by the Knesset by the end of 2024.
Bank of Israel Governor Amir Yaron, Finance Minister Bezalel Smotrich, the Finance Ministry director general and Netanyahu’s economic adviser participated in the meeting, according to a joint statement that offered no details from the discussions.
In the wake of credit rating cuts by S&P and Moody’s, Smotrich is under pressure to maintain fiscal responsibility at a time when the budget deficit has swelled due to Israel’s war against Hamas in the Gaza Strip, now in its 10th month.
Spending on the war has topped NIS 80 billion ($22 billion) and investors are watching to see if Smotrich has the political will in the coalition of right-wing and religious parties to make big fiscal adjustments.
The 2024 budget approved before the war was amended to include extra spending while raising the budget deficit target to 6.6 percent of GDP this year from a planned 2.25%.
In June the deficit reached 7.6% of GDP.
“It is the government’s responsibility to take the necessary steps, even if some of them may not be popular, to ensure economic stability and to promote sustainable growth,” Yaron said last week after the central bank held interest rates steady.
“If the government only partially implements the fiscal adjustments required, or defers the approval of the budget into 2025… it is liable to lead to an additional increase in Israel’s risk premium. This would be a result of the formulation of the perception in the markets that the debt to GDP ratio is on an uncontrolled path.”
Smotrich has been harshly criticized for failing to adjust fiscal priorities to address wartime needs and support the economy’s recovery. Despite making moderate spending cuts in the 2024 revised budget, Israel’s right-wing coalition has left in place billions of shekels in discretionary funds made available to political allies under deals reached in coalition talks over a year ago.
Sharon Wrobel contributed to this report.
