Amir Yaron, governor of the Bank of Israel, speaks during a news conference on interest rates in Jerusalem, Israel, Monday, Feb. 26, 2024.
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Israel’s central bank chief on Sunday called on the government to implement responsible fiscal policy by curbing non-defense spending to offset any further expansion of the military budget.
Lawmakers this month approved an amended state budget for 2024 that added tens of billions of shekels to finance Israel’s war against the Palestinian Islamist group Hamas in Gaza, as the conflict nears its six-month mark.
Amir Yaron, governor of the Bank of Israel, said that to establish the size of the defense budget in an informed manner, a committee should be established soon, with the participation of civil and defense functions.
“It should outline Israel’s defense needs in the coming years and formulate an appropriate multi-year budget program that will take into account all ramifications on the economy,” he said in a letter to ministers and members of parliament in the bank’s 2023 annual central. relationship.
“It is important that a further increase in the budget, beyond what has already been decided, is accompanied by fiscal adjustments that at least prevent a lasting increase in the public debt/GDP ratio.”
Israel plans to add about 20 billion shekels ($5.4 billion) to defense spending each year.
The amended budget also provides for the payment of compensation to families and businesses affected by the war, sparked by Hamas’ shock attack on Israel on October 7.
It sets a deficit of 6.6% of gross domestic product (GDP) in 2024, revised from the pre-war level of 2.25%. In February the deficit rose to 5.6% over the previous 12 months from 4.8% in January.
Yaron said the Israeli economy faces significant challenges, particularly low labor productivity and weak basic skills that prevent ultra-Orthodox Jewish men and Arab women from integrating into the job market.
The Israeli economy grew by 2% in 2023, with zero GDP per capita.
The governor said the Israeli economy entered the war with good economic fundamentals and has recovered quickly from crises in the past.
“Implementing responsible economic policy that addresses current challenges, while managing key challenges to the economy and encouraging its growth drivers, will help achieve sustainable growth,” Yaron said.