The Ministry of Health believes that in an extreme scenario, hundreds of thousands of Israelis will be infected with the coronavirus, according to a presentation in discussions by a government team dealing with Israel's preparations for an epidemic. As well as the cost in lives, the Ministry of Health's nightmare scenario is liable to have severe consequences for economic activity, especially if tens of thousands of workers are bedridden or hospitalized.
Also presented at the meeting were assessments by the National Security Council of the global spread of the coronavirus and its consequences. The team, headed by Ministry of Finance director general Shai Babad, is working under a special ministerial committee for dealing with the coronavirus crisis, headed by Minister of Finance Moshe Kahlon. The Bank of Israel is also conducting emergency discussions, with participation by banking system leaders, given the growing extent of the disease.
Even less gloomy scenarios than the one presented yesterday by the Ministry of Health involve considerable economic damage. For example, the government predicts that if the extent of the coronavirus exceeds a certain threshold, with many hundreds or thousands being infected, Israel will find itself among the among the excluded countries, together with China, South Korea, and Italy. In this case, in addition to the collapse of incoming tourism, Israel's exports will also be hard hit, a blow from which the economy will require time to recover. The government estimates that the current extent of morbidity and isolation will cost the state NIS 3-4 billion in tax revenue, which will increase the budget deficit, even if only temporarily.
The outbreak of the coronavirus in Israel is confronting the economy with grave and previously unknown dilemmas and risks, given the transition government and uncertainty about when a new government will be formed. The problem will become critical if the state has to inject emergency funds into the health system or for other purposes. NIS 100 million has been spent to date on coronavirus preparations, mainly on equipment, infrastructure, and medical teams, but this is liable to be only the beginning. If the number of patients mounts into the hundreds of thousands or more, the state will have to inject billions into the health system. Such sums cannot be injected at present because of the restrictions of the continuation budget, and rapid legislation will therefore be required, involving cooperation between the large Knesset factions.
Beyond the future budgetary needs, the government is already facing the question of compensation for employees and businesses negatively affected by the disease.
As of now, the state is sticking to its decision to avoid paying compensation for damage from the coronavirus. It is feared that providing compensation to one specific company will set a precedent for the entire economy. As for employees, the government is not currently compensating employers bearing the burden of paying for sick leave for their employees. The proposals raised for adding sick leave for state employees have been taken off the agenda for the moment, and the absences of state employees because of the coronavirus will be deducted from their sick leave.
As for the private companies encountering difficulties, the policy is to provide assistance in individual cases, with an emphasis on cash flow solutions: postponing payments and bring revenue forward in order to help companies overcome their cash crunch. The main case facing the government so far is that of El Al, whose difficulties are caused by so many flight cancellations.
Bank of Israel will probably cut the interest rate, but not immediately
The expected consequences from the global spread of the coronavirus caused the US Federal Reserve Board to announce an exceptional and unexpected 0.5% interest rate cut. This immediately raised the question of whether the Bank of Israel will take a similar measure by cutting the interest rate from 0.25% to 0.1%. The next interest rate revision date is in early April, but the Bank of Israel can also change the rate between the regularly scheduled dates, as the Federal Reserve Board did yesterday.
Without trying to guess what the central bank is planning, it should be noted that the Bank of Israel's interest rate is already close to zero, and opposition to lowering it to zero at the Bank of Israel is strong. In other words, the Governor of the Bank of Israel probably has only one bullet to fire, or at most a bullet and a half, and will probably be in no hurry to shoot it. He has made it clear in the past that the interest rate policy will be changed only if the economy takes a real downturn, or if the inflation rate falls steeply. Downward revisions of growth forecasts around the world are beginning now, and inflation is also expected to be lower than the forecasts, so it is likely that an interest rate cut will come sooner or later. It is therefore recommended to wait for the publication of the February Consumer Price Index ten days from now, and especially the March Consumer Price Index (scheduled for publication on April 15), which will reflect the effect of the coronavirus. Beyond that, notice should also be taken of the fact that the Fed's unexpected interest rate cut yesterday did not calm the markets; it aggravated anxiety, because it was interpreted as showing panic.
Published by Globes, Israel business news - en.globes.co.il - on March 4, 2020
© Copyright of Globes Publisher Itonut (1983) Ltd. 2020