Israel's debt-to-GDP ratio - the most important index for measuring a country's fiscal and financial soundness - fell to 66.1% in 2013 from 67.1% in 2012, the Ministry of Finance announced today.
Public debt, including by municipalities, fell by one percentage point to 67.4%. This debt was 82% in 2006 and over 100% in 2002. In absolute terms, the debt was NIS 696 billion, a 4% increase, mainly because of a NIS 35 billion increase in net debt (the raising of new debt, after deducting repayments).
The Ministry of Finance says that the continuing drop in the debt-to-GDP ratio was due to nominal growth, which was faster than the increase in the debt, low inflation (which reduces Consumer Price Index (CPI) linked debt), and the strengthening of the shekel against the dollar (which reduced foreign currency debt).
Israel's position continued to improve in international comparisons. The debt-to-GDP ratio among developed countries was 108.5%, 41 percentage points higher than Israel's ratio. The difference is partly due to Israel's progress, but mainly because of the deterioration in the debt of some European countries in the wake of the 2008 global financial crisis. Israel's ratio is much lower than in Europe, where it averages 95%, and less than the US ratio of 106% in 2013, according to the Accountant General's Office.
Nonetheless, Israel is paying a heavy price on the debt. Interest payments on the debt totaled NIS 38.4 billion in 2013. "In absolute terms, 'interest payment' is Israel's third largest budget item, after defense, and close to the education and health budgets," said Accountant General Michal Abadi-Boiangiu. The reason is that even though interest rates in the world are very low, two-thirds of Israel's debt is old debt, on which it pays 3-6% interest.
Israel's debt amounts to 3.6% of GDP, nearly double the OECD average of 1.84%.
Looking ahead, Abadi-Boiangiu said that under the current deficit structure, debt issues would be no larger in 2015 than in 2014.
The good news follows the data on the cumulative deficit, which fell to a five-year low in April, to 2.5% of GDP. As a result, the yield on ten-year unlinked government bonds fell to an all-time low of just 3.19%.
Abadi-Boiangiu said that one of the most important challenges for the Debt Management Unit was the consequences on the jump in untradeable debt in offerings, which rose from 9% in 2011 to 25% in 2013. Untradeable debt is entirely used for designated bonds, which have a much higher yield than the market yield, reflecting a benefit. Debt Management Unit director Gil Cohen said that one of the important achievements was the extending of the bonds' average lifespan, which reduces risk and the number of times that the government must raise debt on the market.
Published by Globes [online], Israel business news - www.globes-online.com - on May 13, 2014
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