The Ministry of Transport is not managing to meet budget targets and project timetables, and the economic consequences are mounting up. Sources inform "Globes" that, in the ministry’s spending forecast for 2025, the development budget will again not exceed the NIS 20 billion level that it has settled at in recent years.
When the 2023-2024 budget was being put together, the spending forecast for 2024 was NIS 21 billion, but in practice it Is not expected to exceed NIS 20 billion, and despite expectations that it would surpass this level in 2025, the Ministry of Transport’s spending forecast will remain at NIS 20 billion.
According to government sources, because of the difficulty in realizing transport development budgets, the spending target is set in advance at amounts similar to those of previous years. This is despite the fact that more and more projects are included in the budget. Setting these forecasts amounts to a lowering of expectations to match the ministry’s execution capabilities.
Foreseeable delays to projects also affect the forecast. It is clear that the fourth railway track along the Ayalon will not be ready in 2028 as planned, but in 2032, and payments to contractors will be deferred accordingly. The same applies to the Green Line of the light rail system in Gush Dan, completion of which has been put back from 2027 to around 2030, and the Green Line of the Jerusalem light rail, completion of which, as revealed by "Globes", will be deferred from 2025 to 2026, and these are just some examples.
The delays and the inability to execute projects harm the productivity of Israeli workers. Since 2020, the Ministry of Transport has not succeeded in breaking through the NIS 20 billion annual spend level, even though senior officials there and at the Ministry of Finance talk about the need to increase spending on transport infrastructure development, and even though the money is available.
Some of the delays to projects are attributable to the war that broke out last October, leading to a shortage of construction workers in a sector that relied heavily on Palestinian labor, and to the fact that foreign companies left Israel at the outbreak of war, and to the difficulty of bringing them back.
But the problems in the execution of infrastructure projects in Israel go deeper than that. Projects come to a halt for months on end, because of objections by local authorities before elections, something that stood out this year in Jerusalem and Tel Aviv, where work on light rail lines was postponed. There is a severe shortage of engineers. Coordination between infrastructure companies in Israel is difficult to achieve. Israel Electric Corporation alone is responsible for many delays to infrastructure projects because it does not always assign them high priority, and it is a similar story with the water and the telecommunications companies. Planning processes are long and regulators put difficulties in the way, as does the cumbersome Tenders Law.
In the past year, the longstanding problems and the war have been capped by the fact that professionals have left the Ministry of Transport and the infrastructure companies that are subordinate to it en masse, and most of the important execution functions at the ministry have been taken over by people close to Minister of Transport Miri Regev. The turnover of senior management personnel at the ministry contributes to the delays, especially when the replacements are not qualified to carry out complicated, expensive projects that will have a large impact on Israel’s citizens and its economy.
The Ministry of Transport expects the annual infrastructure spend to climb to NIS 30 billion within three years, with progress on the Metro underground railway project in the Greater Tel Aviv area, but the difficulty in breaking through the NIS 20 billion ceiling in recent years puts the government’s targets in doubt.
Effect on the economy
The failure to execute infrastructure investment affects the entire economy. A report by the Bank of Israel in 2023 stated that the gap between Israel and other developed countries in worker productivity was due to shortfalls in human capital and in physical infrastructure, particularly transport infrastructure. "Closing of the gap in the ratio of the stock of public capital to national product and in the quality of infrastructure between us and the developed countries by 2080, for example, requires a doubling of investment, considering the starting lag and the rapid rate pf population growth in Israel," the report said.
In 2019, another Bank of Israel report stated that investment in the transport system would cut the amount of time that people waste because of traffic congestion and the cost of bringing workers to their places of employment. According to research by the International Monetary Fund, an increase of 1% of GDP in public investment in transport infrastructure would, within four years, lead to a 1.5% rise in GDP, or even more than that, depending on how efficiently the investment was carried out.
The Ministry of Transport said in response that it had concluded a year with the significant achievement of authorizations to commit amounting to NIS 63 billion for large transport projects around the country. "As for the forecast budget execution for 2025, the claim mentioned is not known to our ministry, as the Infrastructure Administration at the ministry is currently working on the forecasts, and the final result has not yet been obtained," the ministry said.
Published by Globes, Israel business news - en.globes.co.il - on July 21, 2024.
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