Governor of the Bank of Israel Amir Yaron has sent an extraordinary letter to Prime Minister Benjamin Netanyahu, calling on him to make progress on building the state budget for 2025. This is in the wake of the fact that the budget was not approved by the government as scheduled on August 15, and of reports that the government is considering passing a two-year budget. Yaron stresses the importance of advancing the budget with adjustments of NIS 30 billion for the year, and that the budget should be for a single year and not for two years.
"The current security situation, together with the economic uncertainty and challenges associated with it, oblige the government to adopt a responsible and balanced fiscal policy," Yaron writes. "Maintaining the budget framework for 2024 and advancing the process of constructing the budget for 2025 are critical for preserving the stability of the economy and strengthening its reputation. In addition, passing the budget on time will make it possible to deal better with the cash flow challenges and will reduce the need for exceptional fiscal tools.
"Bringing together all the professional agencies in formulating the budget, as normal, is vital to an inclusive process that will ensure a balanced and responsible budget," Yaron states.
In his letter, Yaron repeats the need for adjustments amounting to NIS 30 billion in the future budget, and writes, "In the light of the scale of the require adjustments and the structure of the budget, beyond cutting expenditure, significant steps will be required to increase revenues. It is also important to include structural changes that generate growth supportive of the fiscal policy. I would emphasize that carrying out these adjustments is vital to preserving a sustainable debt to GDP ratio and to preserving Israel’s fiscal credibility."
Yaron comments on the rating downgrade by international credit rating agency Fitch last week. "The rating downgrade partly stems from the security situation, but it also reflects the assessment of current economic policy management, and stresses the line of future policy," he writes. "These developments strengthen the need for advancing approval of the budget, with the required adjustments. Such a step will reduce the uncertainty on the markets, contribute to economic stability, and allow informed and effective steps to be taken. In addition, it is highly important to abide by previous fiscal commitments, including the policy steps already announced and contained in the estimates and forecasts of market players and the international financial institutions."
Yaron makes favorable mention of the adjustments enacted in the 2024 budget, saying that, although they were not optimal and that measures to encourage growth should have been included, they did send a positive message to the rating agencies. He also writes that convening the committee to review the defense budget represents a positive step that could contribute to a long-term view of defense needs and help in building an orderly and responsible budget.
Published by Globes, Israel business news - en.globes.co.il - on August 20, 2024.
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