Israel faces a NIS 160 billion deficit, largest in 35 years

Tax revenues declined by NIS 6.5 billion and revenues from Bituach Leumi and other sources dropped NIS 22.9b.

By ZEV STUB
Illustrative photo of Israeli money (photo credit: MARC ISRAEL SELLEM)
Illustrative photo of Israeli money
(photo credit: MARC ISRAEL SELLEM)
How much has the coronavirus pandemic cost the country? Israel’s government deficit for 2020 reached NIS 160.3 billion, 11.7 percent of the Gross Domestic Product (GDP) and the largest ever in the country’s history, the Finance Ministry said Monday.
For comparison, 2019’s deficit was NIS 52.2 billion, or 3.7% of GDP.
The state’s economic plan for the pandemic caused expenses of NIS 68.6 billion, while costs associated with Israel’s interim budget (due to the absence of a government-approved 2020 budget) reached NIS 10.1b. Meanwhile, tax revenues declined by NIS 6.5 billion and revenues from Bituach Leumi and other sources dropped NIS 22.9b.  due to the crisis in employment and commercial activity.
Israel’s 11.7% deficit was the sixth highest in the world in 2020, after the UK, Canada, United States, Iceland and Australia. However, the Finance Ministry noted, it went into 2020 with a higher deficit than most countries. Israel’s deficit grew by 7.9 percentage points in 2020, while the average deficit growth among OECD countries was 8.6%, it noted.
On the positive side, Israel’s GDP dropped by only 3.3% during 2020, much less than for most countries, and exports were nearly unchanged.
The Treasury’s numbers came as no surprise, Bank Hapoalim chief economist Prof. Leo Leiderman said following the report. “The year was spent managing a recession and a health crisis. The government had many challenges to meet, including providing support to the unemployed, small- and medium-sized businesses, and others. In addition, a recession is typically a time when taxes and other government receipts decline, so it is no surprise that higher spending and lower tax receipts enlarged the deficit.
Bank Hapoalim chief economist Prof. Leo Leiderman. (Photo credit: Courtesy)
Bank Hapoalim chief economist Prof. Leo Leiderman. (Photo credit: Courtesy)
“Overall, the deficit, a bit below 12% of GDP, is of a similar order of magnitude as that of several other advanced economies, and it is well below the expected deficit for the US. We expect the deficit to remain high, especially in the first half of this year. Hopefully, the process of vaccination will soon be completed, and the economy will be able to start getting back to normal. As far as budget financing is concerned, Israel is in a comfortable position given that the real interest rate on medium and long-term bonds issued by the government is negative.
“Credit rating agencies are not likely to react to the figures, which were expected. What is most important for the economy, and rating agencies, is that there will be a decisive political outcome in the coming elections in March. This should establish a stable governing coalition to approve a government budget and economic policy for 2021-2. Otherwise, political instability and the risk of having another round of elections could put at risk Israel’s very good credit rating.
“Deficits have been unavoidable in Israel and around the world under the coronavirus crisis but it is premature to talk about contractionary measures to attempt to reduce the deficit. This should happen if and when the economy starts on a safe path to recovery, and we are not there yet.”