NIS 10b coronavirus aid plan not what it seems

Amiram Barkat

In any case the government doesn't have the money for its share.

The real cost of the so-called NIS 10 billion economic stabilization plan announced by Prime Minister Benjamin Netanyahu is very low - as little as NIS 2 billion. The first aid plan announced yesterday is designed mainly to calm the markets and the people. Another target audience is small and medium-sized business owners and their employees, who are fearful for the future of their businesses and jobs. The psychological message is important, because in economics, expectations can set processes in motion and trigger a slowdown or a recession. Where will the state find NIS 10 billion when the current budget is short of NIS 20 billion for existing needs, and the only way to increase the budget framework is through the Knesset? The answer consists mainly of creative thinking.

This is how it works: 80% of the NIS 10 billion mentioned by Netanyahu - the NIS 8 billion for a fund to aid small and medium-sized businesses - will come from the banks and investment institutions through a fund that the Ministry of Finance has been operating since 2016. This fund has distributed almost NIS 7 billion in credit to date, and was increased by an additional NIS 4 billion a week ago, the first stage of which amounts to NIS 2 billion. This credit is to come from a group of lenders composed of banks and investment institutions. Businesses with an annual turnover of up to NIS 100 million with cash flow problems can apply to the fund for a five-year loan (an average of NIS 2 million per medium-sized business) at an interest rate of prime plus 2-2.7%. The state's role is not to provide money; it will guarantee 85% of the amount of the loan. The fund's rules state that over 90% of the loans will be repaid, so that the guarantees will actually cost the state NIS 90 million for each NIS 1 billion in loans. How much of the NIS 8 billion will be used? It depends on the depth of the crisis, but for the Ministry of Finance, more than NIS 2 billion will come as a great surprise.

We are left with NIS 2 billion of the NIS 10 billion - this is the real sum that the state is undertaking to spend: NIS 1 billion for the health system for procurement of drugs and equipment, training staff and so on, and NIS 1 billion more for what Netanyahu called "special needs," meaning financing for actions and equipment needed by the security and rescue services in order to handle the coronavirus. At present, as emphasized by Ministry of Finance director general Shai Babad, the health system requires much less than NIS 1 billion, and the amount required for special spending is also much less at this stage. Aid for El Al and the other airlines is not part of the NIS 10 billion, and is due to be presented separately next week.

Where will the money that will be spent come from? It appears that at the moment there are no budget sources for even the additional NIS 2 billion in the plan. The Ministry of Finance is racking its brains, and will probably continue doing so in the coming day to find expenses that can be cut in order to provide the necessary money. Who knows - perhaps the coronavirus will vanish by the time the money is found.

Published by Globes, Israel business news - - on March 12, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

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