Bank of Israel Governor Amir Yaron sent an extraordinary letter to Prime Minister Benjamin Netanyahu, calling on him to make progress in drafting the 2025 state budget. This comes after the budget was not approved by the government as scheduled on August 15, and reports that the government is considering passing a two-year budget. Yaron stressed the importance of moving forward with the budget with adjustments of NIS 30 billion per year, and that the budget be for one year rather than two years.
“The current security situation, coupled with the economic uncertainty and challenges associated with it, oblige the government to adopt a responsible and balanced fiscal policy,” Yaron writes. “Maintaining the 2024 budget framework and advancing the 2025 budget process is crucial to maintaining the stability of the economy and enhancing its reputation. In addition, passing the budget on time will make it possible to better deal with cash flow challenges and will reduce the need for exceptional fiscal tools.”
“Bringing all professional agencies together in formulating the budget, as is usually the case, is vital to a comprehensive process that ensures a balanced and responsible budget,” Yaron says.
In his letter, Yaron reiterates the need for adjustments of up to NIS 30 billion in the future budget, writing: “In light of the size of the required adjustments and the structure of the budget, in addition to cutting spending, significant steps will be needed to increase revenues. It is also important to include structural changes that generate growth that supports fiscal policy. I would like to emphasize that implementing these adjustments is vital to maintaining a sustainable debt-to-GDP ratio and preserving Israel’s financial credibility.”
Commenting on the credit rating downgrade issued by Fitch Ratings last week, Yaron said: “The credit rating downgrade stems in part from the security situation, but it also reflects the assessment of the current economic policy management and confirms the future policy line. These developments reinforce the need to accelerate the approval of the budget, with the required adjustments. This step would reduce uncertainty in the markets, contribute to economic stability, and allow for informed and effective steps. In addition, it is important to adhere to previous financial commitments, including the already announced policy steps that are included in the estimates and expectations of market players and international financial institutions.”
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Yaron points positively to the amendments enacted in the 2024 budget, saying that while they were not perfect and should have included measures to encourage growth, they sent a positive message to credit rating agencies. He also wrote that the convening of the committee to review the defense budget is a positive step that can contribute to a long-term vision of defense needs and help build a well-organized and responsible budget.
This article was published in Globes, Israeli Business News – en.globes.co.il – on August 20, 2024.
© Copyright Globes Publisher Itonut (1983) Ltd., 2024.