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Israel Can’t Prevent the World From Noticing Its Fiscal Failure, Amplified by Coronavirus Crisis

Meirav Arlosoroff
Meirav Arlosoroff
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Prime Minister Benjamin Netanyahu announces steps to ease coronavirus restrictions at a press conference in Jerusalem, April 26, 2020.
Prime Minister Benjamin Netanyahu announces steps to ease coronavirus restrictions at a press conference in Jerusalem, April 26, 2020. Credit: Kobe Gideon / GPO
Meirav Arlosoroff
Meirav Arlosoroff

The most intriguing question of the moment is what standard will Israel use to manage its strategic exit from the coronavirus lockdown. On Sunday, it was reported that the Health Ministry had adopted three new ones – up to 300 new confirmed cases a day, up to 300 seriously ill patients at any one time and a doubling of the number of cases every 21 days.

That’s comforting news because these are much easier benchmarks than any officials had spoken about until now. Note, for example, that the team of experts advising the National Security Council had originally recommended that just 10 new cases daily be set as the maximum for reopening the economy.

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However good the news is, the fact remains that we are still living with the wretched way in which the coronavirus crisis was managed. We don’t know how these standards were set, whether it is today’s 300, the previous 10 or the scores that the Health Ministry’s Gertner Institute had originally fixed. It reflects a lack of professionalism in how the decisions were taken.

Even worse, the Health Ministry standards were decided by the ministry internally. The cabinet never discussed them and certainly didn’t approve them, which means the new standards aren’t binding as far as Israel’s exit strategy goes.

It’s widely believed that the ambiguity serves the Health Ministry, which doesn’t have to commit itself, and Prime Minister Benjamin Netanyahu, who can decide when to reopen or again close down the economy. Could it be he wants to shut it down – and the justice system in particular – on a particular date?

The absence of clear benchmarks, in complete contrast to the countries that have dealt with the pandemic most successfully, such as Germany, Australia and New Zealand, exposes Israeli management style: careless policies, decision-making on the fly and leadership by a mediocre executive, namely Netanyahu.

Netanyahu’s managerial mediocrity has hamstrung Israel’s ability to deal with the crisis. Shira Greenberg, the treasury’s chief economist, over the weekend estimated that Israel’s economy would shrink 5.4% to 6.5% this year, the biggest downturn in its history. Unemployment will climb to 8% to 9% and the budget deficit will widen to 11% to 12%. As a result, the ratio of debt to GDP will increase 15 percentage points to as much as 76% by the end of the year.

At 11%, Israel’s deficit will be the third-highest among developed economies, behind the United States and Canada. Fortunately, we entered the crisis with a relatively small debt ratio and that, combined with bulging foreign currency reserves, should save us. Even after this year’s forecast jump, our debt ratio will still be just under the average.

The problem we started the crisis with was the relatively steep 4% budget deficit we were running even as the economy was growing and unemployment was at a record low. Israel wasted its fiscal ammunition before the war against the pandemic began. With the coronavirus crisis, we now find ourselves in an uncomfortable place in terms of national finances.

From the place we’re in now, there is not a lot of room to widen the deficit further, even if we wanted to. The fact is, we have limited our ability to respond to the crisis and provide the kind of aid we may need to give the self-employed and small businesses because of the pre-crisis mismanagement of the budget. The neglect is that of the Netanyahu government.

The world is not stupid. Read what analysts at the credit rating agencies Fitch and Moody’s have had to say on Israel over the weekend. The comments from Moody’s, which lowered Israel’s outlook to Stable from Positive, is painful. “Israel’s fiscal performance has materially worsened over the last two years,” which the coronavirus crisis has only exacerbated.

Moody’s writes that given Israeli poor record in keeping to fiscal targets, it doesn’t expect the situation to right itself so quickly; in other words, it’s not confident of the government’s ability to learn from the experience and change its ways. Worse still, Moody’s expresses concern about the growing political polarization and the harm it has caused to government effectiveness. Far from easing the polarization, Moody’s expresses concern that it won’t last more than its six months as an “emergency” government.

Under the circumstances, Israel may well find that the markets no longer have confidence in it and are no longer prepared to lend it money, a situation of de facto bankruptcy.

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