Israel debt-to-GDP Ratio Falls Below 60% for First Time

Preliminary figure for central government debt was 59.4% at end of 2017

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Finance Ministry Accountant General Rony Hizkiyahu April 22, 2018
Finance Ministry Accountant General Rony Hizkiyahu April 22, 2018Credit: Ofer Vaknin

Israeli government debt fell below 60% of gross domestic product for the first time ever at the end of 2017, Finance Ministry Accountant General Rony Hizkiyahu said on Monday, citing preliminary figures.

Not counting debt of local authorities, the ministry said debt had fallen to a preliminary 59.4% of GDP, which would for the first time ever put Israel inside the benchmark that the European Union’s Maastricht Treaty set as the permissible debt ceiling for member countries.

However, with local authority debt added in, the figure was a preliminary 61.1%.

The treasury ascribed the decline to tax collections that came in at 17 billion shekels ($5 billion at current exchange rates) over target last year, reducing the budget deficit to just 2% of GDP.

The debt-to-GDP ratio is watched carefully by international financial markets. In November 2016 the Fitch ratings agency cited the declining debt ratio from 95.2% in 2003 and 74.6% in 2007 for raising Israel’s credit rating to A-plus. It reaffirmed that with a Stable outlook last April, but the lower figures may cause the firm and others to revisit the issue.

Apart from the low budget deficit, the other factors lowering Israel’s debt ratio have been strong economic growth, the strengthening shekel against the dollar and declining interest costs.

“Shrinking government debt enables us to pay less interest on the debt we have and redirect spending to social ministries and reducing income gaps,” noted Finance Minister Moshe Kahlon on Monday.