Israel stalls on state budget – Bloomberg

Substantive talks on the fiscal framework for 2025 have yet to begin amid the ongoing war in Gaza, according to a report

Israeli Prime Minister Benjamin Netanyahu’s administration has stalled on holding critical discussions on the country’s 2025 budget amid the ongoing war in Gaza and escalating tensions with Hezbollah, Bloomberg reported on Monday.

According to the outlet, citing Israeli Finance Ministry officials, budgeting is usually well underway by this time of year, but almost no substantive discussions have taken place so far.

Budget proposals are typically drafted early in summer, brought to the cabinet for approval by August, and passed by parliament by the end of the year. Failure to pass a budget by March 31, 2025 will result in the dissolution of the government and a snap election.

Netanyahu and Finance Minister Bezalel Smotrich, who reportedly met with the prime minister last week for budget talks, have not explained the delays.

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An unnamed official at Netanyahu’s office told Bloomberg that spending and financing plans could be comfortably approved even if they are placed before the cabinet as late as October.

Meanwhile, Israel’s central bank chief, Amir Yaron, has called on Netanyahu to speed up the process, claiming that financial markets were seeking a responsible fiscal policy even during a time of war.

Yaron has argued that permanent budgetary adjustments totaling some 30 billion shekels ($8.1 billion) are needed next year to sustain increased defense and other war-related expenditures. He also emphasized the need for Israel’s debt-to-GDP ratio to be steadied.

“Maintaining the budget framework for 2024 and promoting the orderly process of structuring the budget for 2025 are critical,” Yaron insisted.

Faced with credit ratings downgrades as the state deficit widens amid growing military and civilian spending, the Israeli government has come under increased pressure to maintain fiscal responsibility and credibility.

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The country’s spending on the war has reportedly topped $22 billion. Israel has raised more than $52 billion through July to help fund the military and plug the fiscal deficit.

The budget deficit reached 8.1% of GDP in July, but Smotrich has expressed confidence that it will move back towards the 6.6% target for 2024 by the end of the year.

This month, Fitch Ratings slashed Israel’s long-term credit rating, citing the impact of the war. The downgrade followed similar cuts by Moody’s and S&P.

The nation’s GDP grew just 2% last year, almost half the rate the Finance Ministry expected prior to the outbreak of the Gaza war.

“The government stalls because the unveiling of a budget involves public scrutiny, and if controversial expenses aren’t cut it will be slammed domestically and may precipitate another downgrade in Israel’s credit rating,” Avigdor Lieberman, Netanyahu’s former foreign and defense minister, told Bloomberg.

“It’s likely that the government will choose to increase the deficit and its external debt,” Lieberman claimed.