Election turmoil plunges Israel into budget crisis

Reuters | Jerusalem | Updated: 21-11-2019 18:48 IST | Created: 21-11-2019 18:36 IST
Election turmoil plunges Israel into budget crisis

With the prospect of a third election in Israel in less than a year, it will be well into 2020 before a new budget is passed, triggering months of cutbacks that will weigh on economic growth. The Israeli economy has so far weathered two inconclusive ballots and a year of successive caretaker governments that were restricted from making any big decisions, from tax reforms to court appointments.

But it cannot escape the impact of no budget. Government ministries will automatically revert to their 2019 monthly allocations without an increase, making it harder to commission new roads, pay contractors and cover a growing deficit. "Coping with it will not only affect government offices, but also the entire economy," the accountant general told a concerned parliamentary finance committee this week.

He offered the gloomy outlook as it became clear that neither Prime Minister Benjamin Netanyahu nor his rival, Benny Gantz, had enough support in parliament to form a government. With both politicians coming up short, there now begins a 21-day period in which Israeli lawmakers can nominate anyone of the Knesset's 120 lawmakers to try and establish a coalition.

If that fails too, an election is triggered within 90 days, raising the prospect for a weary electorate of going back to the polls after votes in April and September. "There is absolute chaos in all the government ministries. That's what happens when you don't have a budget. And if they really do announce elections - it becomes a nightmare," said Amir Fuchs, a legal expert at the Israel Democracy Institute.

Defense contractors are already seeing government payments being frozen, according to an industry source. New road and rail projects, critical to ease traffic congestion, are expected to be put on hold. "Purchases by ministries will all slow and some will even come to a halt," said Jonathan Katz, Leader Capital Markets' chief economist.

LOST OPPORTUNITIES Uncertainty aside, the shekel remains one of the strongest currencies in the world and economic growth was a robust 4.1% in the third quarter, initial estimates showed this week. But risks have grown over the past year.

Israel's budget deficit is projected to swell to close to 4% in 2019 from 2.9% in 2018, and new taxes and spending cuts are needed to rein it in before it impacts the country's credit rating. Government officials promised to boost investments in public transport and competition in the workforce to keep steam in the economy, but most plans have come to a standstill.

"The main issue is that of lost opportunities. More specifically, the opportunity to make much needed structural changes in the economy," said Bank Leumi chief economist Gil Bufman. The OECD on Thursday cut its economic growth forecast for Israel to 2.9% in 2020, from a previous estimate of 3.3%, and forecast a similar rate in 2021.

It blamed the global slowdown, but also noted that "intensifying structural reforms...is crucial to lower the large social disparities and boost productivity". The OECD also called for tax reform to increase revenue, something impossible without a government in place.

The Bank of Israel is expected to cut its key interest rate next week for the first time since 2015, with most economists polled by Reuters citing the global slowdown and an over-appreciation in the shekel.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)



China: A savior for emerging markets or a poison pill?

... ...

Future of Urban Planning: Artificial Intelligence guiding the way

Advances in emerging technologies like Artificial Intelligence and Machine Learning can help us understand our cities better and derive useful insights from real-time data collected through automated models....


Latest News

Meghalaya to reopen colleges on Feb 1

Colleges in Meghalaya, closedsince the lockdown in 2020 due to the COVID-19 pandemic, willreopen on February 1, state Education Minister Lahkmen Rymbuisaid on Thursday.The decision was taken after a meeting with the headsof the institutions...

HMD celebrating 1 year of the launch of high-quality, ready to use alcohol swabs

New Delhi India, January 28 ANIBusinessWire India HMD Healthcare Ltd. Hindustan Syringes and Medical Devices, one of the leading manufacturers of healthcare and medical devices in the world, is celebrating the one-year of the successful lau...

Angioplasty performed on Sourav Ganguly

Doctors on Thursday performed anangioplasty on BCCI President Sourav Ganguly, said an officialof a private hospital where he is admitted.Two stents are likely to be implanted to clear blocksin a coronary artery of the 48-year-old former Ind...

BITS launches management school

Birla Institute of Technology Science BITS Pilani on Thursday announced the launch of BITS School of Management BITSoM with an investment of around Rs 1,500 crore over the next five to seven years.BITSoM will offer a two-year residential M...

Give Feedback