The Israeli government is paying less interest on its debts and reducing the ratio of debt to GDP, but at the same time is struggling with the burden of the subsidy for the pension funds, according to a report published today by Ministry of Finance Accountant General Michal Abadi-Boiangiu.
Government debt grew to NIS 726.7 billion in absolute figures in 2015, compared with NIS 715.8 billion in 2014. Despite this increase, the interest on the debt paid by the government fell from NIS 38.9 billion in 2014 to NIS 38.3 billion in 2015 NIS 600 million less. In addition, because GDP increased at a faster rate than the debt, the ratio of debt to GDP fell from 66.7% in 2014 to 64.6% in 2015. The debt-to-GDP ratio is a key parameter used by the international credit rating agencies, and the substantial improvement in it played a role in Fitch's decision in April to upgrade Israel's credit rating outlook from neutral to positive.
Governor of the Bank of Israel Karnit Flug today commented on the trend towards improvement in the debt structure and debt costs. Addressing an Israel Economic Association conference, she said, "The reduction of the interest burden, from about 4.5 percent of GDP in 2010 to about 2.5 percent of GDP today, frees up significant sourcesabout NIS 20 billion per yearfor other uses. It is therefore important to maintain this trend."
The trend toward improvement also extended to the rollover ratio, which was 9% in 2015, compared with 15.1% in the US. Ministry of Finance managing director of government debt Gil Cohen and senior Deputy Accountant General Yali Rothenberg are responsible for managing the government debt.
At the same time, despite the improvement in its interest expenses, Israel still comes off poorly by international comparison, as a result of past issuances of debt at high interest rates.
Another growing problem is the continuous increase in non-marketable debt - designated bonds issued by the government to the pension funds - NIS 133 billion - and the insurance companies - NIS 57 billion. The pension funds are entitled to keep up to 30% of their members' assets in designated state bonds guaranteeing a 4.86% real return.
As a result of the rapid increase in the pension funds' assets, the ratio of non-marketable debt to total government debt reached 26.1% in 2015, compared with 25.2% in 2014. The growth in the volume of these bonds and the near-zero interest rate environment increased the subsidy for the designated bonds in 2015 to NIS 4.8 billion, more than in 2014. Some Ministry of Finance departments have stated in the past that the unavoidable solution to this problem is a future reduction in the volume of designated bonds for the pension funds.
Published by Globes [online], Israel business news - www.globes-online.com - on May 18, 2016
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