"Israel will have to make substantial budget cuts starting from 2022 in order to avoid a downgrade of its credit rating," Governor of the Bank of Israel Amir Yaron warned today.
Speaking to students of the College of Management Academic Studies, Yaron said that S&P's recent confirmation of Israel's sovereign rating was "good news that reflects the robustness of the economy", but that along with this the announcement contained "two important warning signs that we should be aware of."
Yaron explained that the first sign was the materialization of the scenario of a worsening of the coronavirus pandemic, and that the second was that "in the medium term they would like to see some kind of fiscal balancing, and that the debt:GDP ratio does not continue to rise beyond 80% - these are two points that we ought to pay attention to."
Yaron presented for the first time a forecast by the Bank of Israel Research Department of the multi-year curve of the debt:GDP ratio under the various scenarios in the macro-economic forecast recently published by the bank, taking into account possible policy outlines.
Under the scenarios, if no fiscal tightening measures are introduced, Israel will reach a debt:GDP ratio of 87% in 2023, even if the pandemic is kept under a high degree of control. Yaron stressed that "the challenges will be greater if we want to introduce more investment to boost productivity."
On the question of the possibility that approval of the state budget will be deferred or that elections will be brought forward, Yaron said, "The 2021 budget needs to be passed as quickly as possible, and we would not want to find ourselves with a continuation budget in 2021, because it will not reflect the order of priorities, and because it will be a contractionary budget. Our recommendation is to pass the 2021 budget, and to make the adjustments that we think are necessary in the natural course of events in the 2022 budget that should be approved in the summer of 2021."
Published by Globes, Israel business news - en.globes.co.il - on November 18, 2020
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