Treasury reportedly warns failure to pass state budget could hurt credit rating

Officials concerned ranking could drop; financial plan still not approved despite three elections and the formation of a unity government

Shops in Bilu Center mall, in Kiryat Ekron, July 30, 2020. (Yossi Aloni/Flash90)
Shops in Bilu Center mall, in Kiryat Ekron, July 30, 2020. (Yossi Aloni/Flash90)

Treasury officials are concerned that Israel’s international credit rating could be downgraded if a state budget is not approved by the end of the month, Channel 12 reported Sunday.

The worries, voiced last week, came as the unity government coalition remains at loggerheads over passing a budget. According to the report, credit rating companies were expected to review the county at the end of the month.

“We must be careful,” Finance Ministry Accountant General Rony Hizkiyahu was quoted as warning. “There is no government stability, and there is no budget after three elections.”

The situation, he said, “is an indicator for a negative outlook to reduce the rating.”

Rony Hizkiyahu , Ministry of Finance Accountant General speaks at a conference of the Ministry of Finance in Jerusalem, on November 12, 2018. (Yonatan Sindel/Flash90)

During recent talks, Finance Ministry director-general Keren Terner Eyal also urged Prime Minister Benjamin Netanyhau to convene a broad meeting to discuss the danger of a credit rating drop, the report said.

After three rounds of inconclusive elections over the past year and a half, and the formation of the unity government in May, a budget still has not been passed. Instead, the government relies on other mechanisms to keep cash flowing into ministries, but those makeshift methods could also negatively impact the credit rating, Channel 12 reported.

Israel’s ability to raise funds abroad, which is dependent on its rating, is particularly sensitive at the moment as the country struggles with the economic impact of the coronavirus pandemic.

Netanyahu and Defense Minister Benny Gantz, who leads the Blue and White party, are deadlocked on the budget, with the prime minister insisting on a one-year budget, while the defense minister is demanding a two-year plan, as set out in the coalition agreement. If Israel does not approve a budget by late August, the country could face another election.

The Finance Ministry said in a statement to Channel 12 that the ministry is ready to bring the budget and its accompanying Arrangements Bill within days “to ensure the stability and growth of the economy.”

At a press conference on Sunday, Netanyahu said, “We need to pass a short-term budget to inject money into the economy in order to turn the wheels of the economy.

“Later, there will be a budget for next year,” Netanyahu said. “We can’t at the moment commit to a budget for a year and a half, that is irresponsible. There is no reason to wrap the budget in political considerations.”

Then-Transportation Ministry director-general Keren Terner Eyal seen at the Transportation Ministry in Jerusalem on May 18 2020. (Yonatan Sindel/Flash90)

In seeking to renege on his coalition deal with Gantz and pass only a budget for the remainder of the current year, Netanyahu is citing the uncertainty created by the coronavirus crisis.

Netyanyahu is widely believed to be doubling down on the single-year option as a way of leaving himself the option of dissolving the government next year by failing to pass a 2021 budget — the only option that, according to his complex and convoluted deal with Gantz, will allow him to send the country to a new election without Gantz automatically becoming prime minister in the interim.

The current cliff edge is August 25. Failure to pass a budget by then will trigger automatic elections in November.

Israel’s economy was brought to an almost total standstill during a lockdown earlier in the year ordered to curb an outbreak of the coronavirus. The measure saw unemployment leap from under five percent to around 26% with over a million Israelis out of work. Unemployed figures have dropped to around 800,000 in the months since the lockdown was lifted, but the country is struggling to control a a rampant resurgence of virus infections.

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