Israel's Political Crisis Already Impacting Economy

Bank Leumi official says the business sector is already feeling the consequences of Israel's lack of a 2020 budget, which affects government contracts, payments across sectors

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Campaign posters outside a polling place in Bat Yam, September 17, 2019.
Campaign posters outside a polling place in Bat Yam, September 17, 2019.Credit: Moti Milrod

The last year has been one of the most difficult in the history of Israeli politics. Two elections and still no permanent government, and the situation is expected to remain that way for at least another six months. The third election is slated for March 2 and even if someone does succeed this time in forming a government, it won’t be in place until May or even June.

The period of uncertainty has stretched on long enough that it starting to have an impact on the economy, too, said Shmulik Arbel, executive vice president and head of the corporate division at Bank Leumi. It threatens to grow worse.

Arbel has a hand on the pulse of the business sector. Along with Bank Hapoalim, Leumi is one of Israel’s two biggest business lenders with a loan book of 130 billion shekels ($37.4 billion).

“Over the past two months we’ve started to feel the [changing] business situation. We hear from our business clients – from small to large – that they are afraid of the impact from the current situation. It started out small, but could expand to larger dimensions as we will soon enter 2020 and the government starts working on a ... monthly budget,” he said.

Shmulik Arbel, executive vice president and head of the corporate division at Bank Leumi, June 20, 2016.Credit: Ofer Vaknin

He was referring to the absence of a 2020 budget, which will force the treasury to continue spending next year along the lines of the 2019 budget on a month-to-month basis.

Arbel points to several examples of sectors that stand to be hurt by the situation. In public transportation, government subsidies to bus operators and contracts to operate new lines are being canceled or delayed.

“In infrastructure, the Tel Aviv Light Rail project is expected to be delayed because they are constantly signing new contracts and conducting tenders worth billions of shekels. In the current situation each contract requires approval from a special committee,” he said.

In the water sector, upgrading of treatment plants has ceased. In environmental quality, natural gas won’t be reaching the factories that use it and local authorities can’t appropriate money. In high-tech, startups are beginning to feel the impact of research and development aid no longer being allocated by the Israel Innovation Authority, Arbel said.

Asked if Israel is heading into a crisis for business, he said: “It’s a delicate situation that requires attention and appropriate preparations. Businesses don’t rise and fall on the profits they generate but on their ability to generate cash. We’ve already seen not a few businesses encountering difficulties due to cash flow. That’s exactly the situation now – a gap in cash flow timing.”