More clarity needed on future defence spending, Israel’s central bank chief says By Reuters

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By Steven Scheer

JERUSALEM (Reuters) – The head of Israel’s central bank on Sunday called on the government to implement fiscal policy using non-secured funds to prevent any further expansion in the military budget.

Lawmakers this month approved a revised budget for 2024 that added billions of shekels to support Israel’s war against the Islamist Palestinian group Hamas in Gaza, as the conflict approaches six months.

Amir Yaron, the governor of the Bank of Israel, said that in order to establish the growth of the defense budget in a clear way, a committee should be established as soon as possible, with the participation of the security forces and civilians.

“It must explain the needs of Israel’s security in the coming years and create an appropriate multi-year plan that will look at all the economic challenges,” he said in a letter to cabinet ministers and members of parliament in the 2023 year. report.

“It is important that if there is a further increase in the budget, beyond what was previously considered, it must be followed by a change in income that will prevent the permanent increase in the public debt to GDP ratio.”

Israel plans to increase its defense spending by 20 billion shekels ($5.4 billion) next year.

The revised budget also allows for compensation payments to families and businesses injured in the war, which began with Hamas’ surprise attack on Israel on Oct. 7.

It projects 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 past 12 months from 4.8% in January.

Mr. Yaron said the Israeli economy is facing serious challenges, especially the lack of jobs and weak skills that prevent Jewish men and Arab women from entering the labor market.

Israel’s economy grew by 2% in 2023, with zero GDP per capita. The governor said that Israel’s economy entered the war with good economic policies and in the past it has also risen rapidly due to difficulties.

“Establishing an economic policy while dealing with the current challenges, at the same time as addressing the major economic problems and the strengthening of the factors that drive growth, will contribute to sustainable growth,” said Yaron.

($1 = 3.6831 shekels)

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