Amir Yaron, Governor of the Bank of Israel, speaks during a press conference on interest rates in Jerusalem, Israel, on Monday, February 26, 2024.
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On Sunday, the head of the Israeli Central Bank called on the government to adopt a responsible fiscal policy by curbing non-defense spending to compensate for any additional expansion of the military budget.
Lawmakers this month approved a revised state budget for 2024 that added tens of billions of shekels to fund Israel's war against the Palestinian Islamist group Hamas in Gaza, as the conflict approaches six months.
Amir Yaron, Governor of the Bank of Israel, said that in order to determine the size of the defense budget in a thoughtful way, a committee should be formed soon, with the participation of defense and civilian tasks.
“It must identify Israel’s defense needs in the coming years and formulate an appropriate multi-year budget program that takes into account all ramifications for the economy,” he said in a letter to ministers and members of parliament in the central bank’s annual report for 2023. a report.
“It is important that if there is an additional increase in that budget, beyond what has already been decided, it must be accompanied by fiscal adjustments that will at least prevent a permanent increase in the public debt-to-GDP ratio.”
Israel intends to add about 20 billion shekels ($5.4 billion) to defense spending annually from now on.
The amended budget also allows for compensation to be paid to families and businesses affected by the war, which was sparked by the shocking attack launched by Hamas on Israel on October 7.
It sets a deficit of 6.6% of GDP in 2024, a revised rate from the pre-war level of 2.25%. In February, the deficit rose to 5.6% over the previous 12 months from 4.8% in January.
Yaron said that the Israeli economy faces major challenges, especially low labor productivity and weak basic skills that prevent ultra-Orthodox Jewish men and Arab women from integrating into the labor market.
The Israeli economy grew by 2% in 2023, with zero per capita GDP.
The governor said that the Israeli economy entered the war with good economic fundamentals and in the past recovered quickly from crises.
Yaron said, “Implementing a responsible economic policy while dealing with the current challenges, in conjunction with dealing with the basic challenges of the economy and encouraging its growth engines, will help achieve sustainable growth.”
