The first trimester of 2008 (January-April) ended with an unexpected surplus of NIS 5.7 billion in state coffers, with April contributing a surplus of NIS 0.6 billion.

The 2008 budget was drawn up based on the assumption that the state would end up with an NIS 11.45 billion deficit (1.6% of the gross domestic product) - NIS 3.8 billion deficit by the end of the first four months. Contrary to earlier estimates, and confounding the treasury's concerns over an economic slowdown this year, three of the first four months of this year ended with an operational surplus.

Higher than expected revenues from tax, along with under-spending in social ministries are the main contributors to the budget surplus. The state collected a total of NIS 65.3 billion in taxes in the first four months of this year, reflecting revenues of NIS 195.8 billion in annual terms - NIS 5.9 billion more than 2008 targeted revenues.

Data from the Accountant General's office released yesterday shows that government spending in April totaled NIS 18.9 billion, and NIS 73.8 billion for the first four months of 2008. Ministry spending in April accounted for NIS 15.8 billion, and NIS 57.1 billion in the first trimester, just 29.3% of the budget allocated to ministries for this year. The Defense Ministry spent 38.7% of its budget, while social ministries spent just 29.3%.

State revenues in April alone were NIS 19.5 billion, and totaled NIS 81.8 billion for the first trimester - 35.8% of the total revenues expected for this year. Tax revenues accounted for NIS 15.6 billion of total revenues in April, and NIS 65.3 billion in the first trimester, compared to NIS 65.1 billion during the same period in 2007. The Tax Authority reports surplus taxes of more than NIS 1 billion compared to its earlier forecasts.

Inflation in 2008 will be in the 2.3-3.2% range and unemployment will rise to 7.4%: these are the forecasts published yesterday in the Bank of Israel's first-quarter Inflation Report.

The report also states that full implementation of the cabinet's plan to help weaker sectors will keep the state from meeting it fiscal goals for 2009-2012.

"The advanced economies are undergoing a financial crisis, possibly the most complex one in the last 60 years, and there is a slowdown in real global growth. Israel has enjoyed four years of economic prosperity, largely thanks to a responsible and prudent macroeconomic policy and improved functioning of the business sector. As a result of its openness to international trade in goods and services and in the financial field, Israel's economy is affected by global developments, but it appears that the effects of the current crisis on Israel will be relatively moderate compared to most other economies," wrote the bank's governor, Stanley Fischer.

The CPI rose 3.7% between April 2007 to March 2008, above the cabinet's annual inflation goal of 1-3%. The main causes were increases in food and energy prices.

"The Bank of Israel will continue to pursue a policy aimed at maintaining price stability, and subject to that, to support growth, employment and financial stability. In that way monetary policy will contribute to sustainable economic growth," Fischer added.