Ministry of Finance Accountant General Rony Hizkiyahu today published the debt management report for 2018, The report shows that government debt increased by NIS 40 billion in 2018. As a result, the ratio of debt to GDP rose for the first time since 2009.
Among the reasons cited by the Ministry of Finance for the increase were "changes in market variables, headed by a substantial shekel depreciation against the dollar and the euro and a higher inflation rate than in the preceding years." The Ministry of Finance did not mention the high budget deficit in 2018 - 2.9% of GDP according to the Ministry of Finance and 3.1% according to Central Bureau of Statistics, the result of a jump in government spending and stationary tax revenues.
The ratios of public debt and government debt to GDP in 2018 were 61.0% and 59.4%, respectively, compared with 60.5% and 58.8% in 2017, respectively. The ratio of debt to GDP is a very important measure - the most important criterion in determining Israel's credit rating. Bringing this ratio down from 74.3% in 2009 to less than 60% in 2017 was the main consideration in raising Israel's credit rating to an all-time high in 2018.
The Ministry of Finance pointed out today that despite the increase in its debt in 2018, Israel still stands well by global comparison in the reduction of its debt-GDP ratio since the global financial crisis, with a cumulative decrease of 13.6% since 2009.
The increase in the debt-GDP ratio in 2018 did not change the rating agencies' positive view of Israel, even though the ratio is expected to increase in 2019. At the same time, the Ministry of Finance assumes that if the debt-GDP ratio continues rising in 2020, the rating agencies' attitude towards Israel will change. The 2020 budget is built on the basis of a 2.5% deficit target, the maximum ratio that will maintain the current ratio of debt to GDP. In order to meet this target, the next government will have to approve adjustments amounting to over NIS 20 billion: spending cuts and increasing revenue sources by raising taxes and reducing tax benefits.
The government debt totaled NIS 788.3 billion at the end of 2018, compared with NIS 747.1 billion at the end of 2017. Furthermore, the trend towards extending short-term loans in the debt portfolio continued in order to reduce the rescheduling risk. The average term to maturity rose to 7.9 years - its highest-ever level.
Hizkiyahu said, "The annual government debt management report reflects the efficient management of the debt, supported by strong economic performance in 2018. This was reflected in both the raising of Israel's credit rating to a record AA by S&P last August and the results of the state's debt offerings on the global capital markets."
Published by Globes, Israel business news - en.globes.co.il - on April 15, 2019
© Copyright of Globes Publisher Itonut (1983) Ltd. 2019