Bank of Israel warns over high risk of COVID-19 financial instability
At the end of 2020 the country will face a deficit of 13% and lose NIS 24 billion in tax revenue, a report by the bank has predicted.
By HAGAY HACOHENAn Israeli flag flutters outside the Bank of Israel building in Jerusalem(photo credit: REUTERS)
The Bank of Israel warned on Tuesday that the country faces a medium to high risk to its financial stability due to COVID-19. Its report lists the potential increase in infection rates and a possible nationwide lockdown as two main reasons lenders may not be able to repay debts. Israel is seen as a “red state” at the moment due to high infection rates.This will require further government incentives, which “will lead to a deterioration of the fiscal picture,” the report said.The bank claimed that, for the short term, “steps taken by the Bank of Israel... succeeded in eliminating much of the panic in the markets and restore them to proper functioning,” and presented the report as a call to decision-makers and the general public to be aware of the possible dangers, and to plan accordingly.The Finance Ministry slammed the report for suggesting Israel offers less aid than other OECD countries and claimed the numbers are “wrong when discussing the previous aid package and certainly mistaken when discussing the current one” of 13.9% of the GDP.The bank responded by saying that the infographic, created by Goldman Sachs, presented the correct amount of aid given (3.7% of the GDP) at the time.The report predicts that at the end of 2020 the country will face a deficit of 13% and lose NIS 24 billion in tax revenue.So far, the government has been able to raise NIS 88 billion, from domestic investors NIS 42b. and foreign ones NIS 46b., and the report claims most credit rating agencies are still “tolerant” of Israel’s credit rating, seeing as the increase in debt is not unique to its government during the pandemic.Prime Minister Benjamin Netanyahu claimed Israel began the pandemic in a good economic situation and that “we should not be afraid to take loans.” The report confirms the first part but calls for stability-increasing measures.Bank of Israel Governor Amir Yaron warned against taking the country into elections in November, calling such a move “bad news to the economy.”He called on the government to “progress as quickly as possible to set a clear outline to forming a state budget and take other financial decisions needed at this moment.”
The report also included the admission that the pandemic is worse than the extreme-case scenarios for which the financial system had prepared in recent years.
