Bank of Israel Governor Amir Yaron told the cabinet Sunday that he supported the new coronavirus economic package, even though it would widen the budget deficit this year to a yawning 13% of gross domestic product.
“This is the time to take advantage of the safety cushions we have to alleviate the impact of the crisis, and allow the economy and the public to get through it with minimal harm,” Yaron said at a cabinet meeting where ministers approved the first part of a 90-billion shekel ($26.1 billion) program unveiled last week by Prime Minister Benjamin Netanyahu and Finance Minister Yisrael Katz.
Yaron said the new program would bring the budget deficit to about 13% of GDP this year and to 7% next year, up from 3.7% in 2019. The government’s first economic program is worth on paper close to 100 billion shekels – even though by the end of June more than half the allocation hadn’t been spent – and had been forecast to boost the budget deficit to 11% of GDP.
Those estimates were based on the central bank’s assumption that the rate of unemployment would not fall below 10% at least until the middle of 2021.
It said Israel’s debt-to-GDP ratio would rise to 76% in 2020 and to 78% in 2021, from about 60% last year.
Yaron said the fiscal cost of the new program alone would reach 15 billion shekels in 2020 and 27 billion in 2021. In addition, the new program calls for 28 billion shekels in government-guaranteed loans.
“The government has the ability to fund the program. The financial markets’ confidence in the Israeli economy and the government’s commitment to fiscal discipline, which has been built up over many years, now stands to the credit of the Israeli economy and will help us overcome this crisis in terms of its financing needs,” Yaron said.