Bank of Israel Governor Amir Yaron speaks during a press conference on interest rates in Jerusalem, Israel, Monday, February 26, 2024.
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The governor of Israel’s central bank called on the government on Sunday to develop responsible fiscal policies and control non-defense spending to offset further expansion of the military budget.
Lawmakers this month approved a revised 2024 state budget that adds tens of billions of shekels to fund Israel’s war in Gaza against the Palestinian Islamist group Hamas as the conflict approaches six months.
Bank of Israel Governor Amir Yaron said that in order to determine the size of the defense budget in an informed manner, a committee involving defense and civilian functions should be established as soon as possible.
“Israel’s defense needs for the coming years should be mapped out and an appropriate multi-year budget plan drawn up that takes into account all impacts on the economy,” he said in a letter to cabinet ministers and members of parliament on the central bank’s annual budget for 2023. impact.” report.
“It is important that if the budget increases further beyond what has been decided upon, it should be accompanied by fiscal adjustments that at least prevent a sustained rise in the public debt-to-GDP ratio.”
Israel plans to increase defense spending by about 20 billion shekels ($5.4 billion) over the next year.
The revised budget also allows for compensation to be provided to families and businesses harmed by the war, which was triggered by Hamas’s shock attack on Israel on October 7.
It revised the deficit to 6.6% of gross domestic product (GDP) in 2024 from 2.25% before the war. In February, the deficit rose to 5.6% from the previous 12 months, up from 4.8% in January.
Ya’alon said that the Israeli economy faces major challenges, especially low labor productivity and weak basic skills, which hinder the integration of ultra-Orthodox Jewish men and Arab women into the labor market.
Israel’s economy will grow by 2% in 2023, and GDP per capita will be zero.
The governor said the Israeli economy entered the war on good economic fundamentals and has rebounded quickly in the past.
“Implementing responsible economic policies while addressing current challenges while addressing the fundamental challenges facing the economy and encouraging economic growth momentum will help achieve sustainable growth,” Yaron said.
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