Warning of crisis, 300 economists urge government to reallocate nonessential spending

In letter to Prime Minister Netanyahu and Finance Minister Smotrich, senior economists call for changing budget priorities and stopping previously planned discretionary allocation

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

A building damaged in a rocket attack in Tel Aviv on October 27, 2023. (Courtesy)
A building damaged in a rocket attack in Tel Aviv on October 27, 2023. (Courtesy)

A group of about 300 senior economists on Monday appealed in a letter to Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich to immediately halt all nonessential expenditure items in the state budget, and reconsider spending priorities in order to cope with a looming economic crisis during the ongoing war with the Hamas terror group.

“You do not understand the magnitude of the economic crisis that Israel’s economy is facing,“ they warned in the letter. “Continuation of the current conduct harms Israel’s economy, undermines citizens’ trust in the public system, and undermines the State of Israel’s ability to recover from the situation it finds itself in.”

Among the signatories of the letter are Prof. Jacob Frenkel, former governor of the Bank of Israel; Rony Hizkiyahu, former Bank of Israel supervisor of banks and accountant general; Yair Avidan, former supervisor of banks; Haim Shani, former finance ministry director general; Prof. Eugene Kandel, former chairman of the National Economic Council; former deputy governor of the Bank of Israel, Prof. Eytan Sheshinski; Prof. Leo Leiderman of Tel Aviv University; and 2021 Nobel Prize winner in Economics Joshua Angrist of the Massachusetts Institute of Technology.

With Israel’s war with the Hamas in its fourth week, about 70 percent of Israeli tech firms and startups are facing disruptions in their operations as a chunk of their employees have reported for reserve duty, according to a survey by the Israel Innovation Authority and Start-Up Nation Policy Institute (SNPI). Many companies from builders to restaurants have shut and other retail firms have furloughed their employees.

The brutal onslaught by the Iran-backed group on October 7 devastated southern communities. About 2,500 terrorists broke through the border into Israel from the Gaza Strip by land, air, and sea, murdering some 1,400 people and abducting at least 230 hostages of all ages under the cover of a bombardment of thousands of rockets fired at Israeli towns and cities.

The economists’ letter  called on Netanyahu and Smotrich to reconsider national spending priorities, as the expected war rehabilitation costs are estimated in the order of tens of billions of shekels, if not more.

A damaged building in Kibbutz Be’eri near the border with Gaza on October 22, 2023, in the aftermath of a Palestinian terror attack on October 7. (Jack GUEZ / AFP)

“The severe blow inflicted on Israel requires a fundamental change in the order of national priorities and a massive diversion of budgets in order to deal with the damage caused by the war, aid the victims, and rehabilitate the economy,” they wrote in the letter.. “Cosmetic changes within the existing budget do not come close to the required scope of expenditure.”

They urged the government to immediately stop the budget expenditure that is not essential to the war effort and economic rehabilitation, including the transfer of coalition funds of an estimated NIS 9 billion ($2.2 billion).

The 2023-2024 state budget, passed in May, included more than NIS 13 billion in discretionary coalition spending, much of which is allocated to educational programs for the ultra-Orthodox community.

“At the same time, the budget for the year 2024 must be opened and updated according to an order of priorities that reflects the needs of the entire economy in light of the war,” they urged in the letter.

Last week, the Bank of Israel cut its growth forecasts for 2023 and next year while warning about the negative repercussions of the war on the local economy and financial markets. The central bank’s research department expects the economy to grow by 2.3% in 2023 and by 2.8% in 2024, as private consumption falls and the ability to work is constrained, down from its previous forecasts of 3% growth for both this year and next.

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