Israel's debt-GDP ratio falls below 60%

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The fall brings Israel within the Maastricht guidelines, raising the chances of a sovereign rating upgrade.

2017 will be remembered as the year in which Israel met the Maastricht criterion for government debt in European Union (EU) countries. An initial estimate published today by Accountant General Rony Hizkiyahu put the ratio of Israel's government debt to GDP at 59.4%, the first time it has ever been below 60%. If local government debt is included, the ratio is 61.1%. The figures published today by the Ministry of Finance are similar to those published three weeks ago by the Central Bureau of Statistics in its 2017 summary.

The decline in the debt ratio resulted from Israel's 3% economic growth in 2017, and to a large extent, from the large-scale tax revenue surpluses during the year, which Minister of Finance Moshe Kahlon decided not to use for increased government spending or tax cuts (except for NIS 1 billion in lower customs duties and purchase taxes). Additional factors that affected the debt ratio were the strengthening of the shekel against the dollar and the ongoing fall in the accrued interest on the government debt.

The ratio of debt to GDP is a key indicator of Israel's financial soundness, and in determining the country's credit rating. According to the 1992 Maastrict criterion, EU members are required to meet two main fiscal criteria: a budget deficit lower than 3% of GDP and a government debt lower than 60% of GDP. The fall of government debt below 60% therefore has great symbolic value. The S&P credit rating agency recently revised Israel's rating forecast to "positive," a measure that means that a credit rating upgrade of Israel in the coming year is very likely.

Lowering the ratio of debt to GDP, one of Israel's main achievements, has been consistent since 2003. At the same time, economists in Jerusalem predict that Israel will find it difficult to continue lowering the ratio in the coming years, given the major tax cuts planned by Netanyahu and Kahlon in the future.

Published by Globes [online], Israel Business News - www.globes-online.com - on January 22, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Mutual funds, finance  phtoto to go
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