Bank of Israel: Budget Deficit to Reach 3.3% If No Budget Passed 

Israel‘s budget deficit is forecast to reach 3.3% of gross domestic product (GDP) this year should no budget be passed in 2020, the Bank of Israel governor told the Knesset on Monday.

Due to a political stalemate following two inconclusive elections, the Knesset has yet to approve the country’s annual budget for this year. In the meantime, a pro-rated version of the 2019 budget is being used.

The last permanent government fell apart in late 2018 and Prime Minister Binyamin Netanyahu has since headed caretaker governments, limited in power, that have been unable to enact any major tax hikes or spending cuts needed to rein in the deficit.

A third election in less than a year will take place in March, meaning it will likely be at least mid-year before a new budget can be put in place.

Should that extend through December, however, the budget deficit will reach 3.3% of GDP, Governor Amir Yaron told the Finance Committee, well above a 2.5% target.

Despite the rising deficit, Israel managed to lower its debt burden in 2019 to 60% of GDP from 60.9% a year earlier, the Finance Ministry announced on Monday, citing strong nominal GDP growth, a strengthening shekel and low inflation.

The country’s ratio of debt to GDP stood at nearly 75% a decade ago.

“This is testimony to the financial strength of Israel‘s economy as reflected in the confidence of investors in the state’s global debt offerings,” Accountant General Rony Chizkiyahu said.

Israel raised a record $3 billion in foreign debt earlier this month, receiving huge demand from investors despite the political stalemate and rising geopolitical tensions in the region.