Israel’s Budget Commissioner Yogav Gradus warned of a new downgrade of his country’s credit rating, attributing his warning to the expansion of government spending limits without making appropriate cuts and adjustments to cover the growing budget deficit.
The Times of Israel quoted Gradus as saying that increasing budget spending could be dangerous for the economy and send a negative signal to investors.
He explained that the Israeli economy faces higher interest costs when borrowing to finance the inflated military and civilian expenditures after the war on the Gaza Strip, after Israel’s credit rating was downgraded by the three major international credit rating agencies (Moody’s, Fitch, and Standard & Poor’s).
The Israeli newspaper reported that the budget commissioner discussed during a meeting of the Finance Committee in the Knesset (parliament) the issue of increasing spending by $900 million in the current year’s budget to help finance the evacuation of civilians and spending on reserve soldiers until the end of this year.
Israeli Finance Minister Bezalel Smotrich recently predicted that the deficit this year would remain at 6.6% of GDP despite the expansion in spending, a claim opposed by officials in his ministry.
Smotrich’s statements come despite the fact that the deficit rate reached 8.3% last month.
It is worth noting that the Israeli budget deficit rate last year amounted to 4.2%.
The costs incurred by the Israeli budget always face the challenge of deficit, especially in the last five years. Here is a brief review:
- In 2020, Israel recorded the highest budget deficit in its history, exceeding $50 billion, which is equivalent to 11% of the gross domestic product, due to the repercussions of the Corona pandemic.
- In 2021, the deficit narrowed significantly from 11% to about 4.5%, reaching $22 billion.
- In 2022, the deficit fell to less than 4% of GDP, reaching about $7.5 billion, with budget expenditures rising to $137 billion.
- During 2023, the financial deficit rose again to about $9 billion due to the repercussions of the war on Gaza and the increase in military spending.
- The repercussions of the war became more evident during the current year, and its expenditures increased to $160 billion, with a deficit of about $35 billion. The deficit continued to jump during the last months to exceed 8%.
