The state budget deficit spiked to 7.2 percent of gross domestic product in July. By the end of this year it’s expected to reach 13 percent. This is one of the highest deficits in the developed world, and it’s also one of the most problematic because of the breakdown of government spending.
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Not only is the government spending masses of money, it’s spending it on unworthy projects: a Passover grant for certain groups, then a grant for every citizen, and now another one is possible for the High Holy Days next month – rather than spending it in required areas. Plus the state still doesn’t have an approved budget and hasn’t started using money for spurring economic growth.
This is a lethal combination. Other countries have also increased spending due to the coronavirus, accruing huge deficits. But other countries have done so as part of a well-managed plan to overcome the damage caused by the pandemic. This includes support for people who are suffering and investment that would reignite growth.
In Israel, neither of these steps are being taken. The virus has not been halted, and there is no plan that would offer some hope and allow the country to extricate itself from the crisis. And there isn’t even anything on the horizon due to the constant threat that the government will break up.
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The result is dangerous profligacy that could lower Israel’s credit rating, which would have dire consequences for the country’s financial stability. Israel is a country without a budget, without a plan for spurring the economy and with a prime minister who, for his own narrow political interests, is about to drag us into a general election during an unprecedented economic and health crisis. This isn’t a country that markets will have great confidence in.
Bank of Israel Governor Amir Yaron has warned the cabinet that the markets’ assessment isn’t based on one metric like debt to GDP or the size of the deficit, but on the way governments and states conduct themselves and allocate resources and budgets during a crisis. In this context, he said, we should remember that the deficit can’t be stretched without limit.
Israel therefore risks a financial crisis more than any other developed country, Yaron added. These words were intended for Prime Minister Benjamin Netanyahu, but his attention is constantly tuned to his inner voice, committed only to his personal survival.
The above article is Haaretz’s lead editorial, as published in the Hebrew and English newspapers in Israel.