by Steven Scheer

JERUSALEM (Reuters) – Israel’s central bank chief called on the government on Sunday to implement responsible fiscal policy by cutting non-defense spending to offset any further increases in the military budget.

Lawmakers this month approved an amended state budget for 2024 that adds tens of billions of shekels to finance Israel’s war against Hamas in Gaza, almost six months into the conflict.

Amir Yaron, governor of the Bank of Israel, said a committee should be created soon to establish the defense budget in full knowledge of the facts.

“It should define Israel’s defense needs in the coming years and formulate an appropriate multi-year budgetary program that takes into account all ramifications for the economy,” he said in a letter to ministers. and members of parliament.

“It is important that, if there is a further increase in this budget beyond what has already been decided, it is accompanied by fiscal adjustments that will prevent at least a lasting increase in the public debt to GDP ratio. “

Israel intends to increase its annual defense spending by some 20 billion shekels (5 billion euros) in the future.

The amended budget also provides for the payment of compensation to households and businesses victims of the war, triggered by Hamas’ shock attack on Israel on October 7.

It forecasts a deficit of 6.6% of gross domestic product (GDP) in 2024, compared to 2.25% before the war. In February, the deficit increased from 4.8% in January to 5.6% over the previous 12 months.

Amir Yaron said the Israeli economy faces significant challenges, particularly low labor productivity and insufficient basic skills that prevent ultra-Orthodox Jewish men and Arab women from integrating into the labor market.

The Israeli economy grew by 2% in 2023, with zero GDP per capita. The governor said Israel’s economy entered the war with good economic fundamentals and in the past has recovered quickly from crises.

(Reporting by Steven Scheer; writing by Kirsten Donovan, Benjamin Mallet)

Copyright © 2024 Thomson Reuters