Psagot Investment House Ltd. chief economist Ori Greenfeld has warned that the rising government budget deficit could result in the postponement of the credit rating rises for Israel announced by ratings agencies Moody's and Fitch. Greenfeld estimates that the budget deficit will exceed the target this year for the first time due to disappointing revenues and rising expenditure following Prime Minister Benjamin Netanyahu's insistence that the defense budget be raised. Greenfield writes, 'There has been a feeling that if the deficit was lower than forecasted in recent years, then that would continue in the future. I don't want to warn but just want to say it won't happen."
Greenfeld predicts that state revenues this year will be NIS 2 billion lower than forecasts while expenditure will be higher than forecast.
Greenfeld writes, "You see a faster than planned rise in expenditure both in civilian ministries and the Defense Ministry. The growth in the defense budget that the prime minister is talking about won't be felt in the 2018 budget but we will see expenses over 100% that exceed the forecasts by between NIS 2 and 4 billion."
The deficit target for 2018 is 2.9% or NIS 38.5 billion.
He added, "It's no great tragedy to have a deficit of 3% while economic growth remains above 3% but there is a change here after for years the deficit was below the target and debt to ratio fell, we see an inflection point and from here onwards the deficits will be higher because it is much more difficult to reduce expenditure in a major way and for sure after what Netanyahu said (about the defense budget.)"
"There won't be immediate repercussions although after the credit rating hike by S&P, it is perfectly possible that the two other rating agencies (Moody's and Fitch) will not raise the credit rating."
Published by Globes [online], Israel business news - www.globes-online.com - on August 19, 2018
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