The fiscal deficit is expected to decline sharply on robust revenues

ISRAEL - In Brief 01 Aug 2021 by Jonathan Katz
Highlights: Sharp growth in tax revenues reduces fiscal deficit The MoF continues to revise its fiscal deficit forecast downwards on surprisingly strong tax revenues. Currently, MoF expect a deficit of 6.8% GDP in 2021 and 4% in 2022. This is expected to stabilize the debt/GDP ratio at around 73%. Strong IPO’s and capital gain taxes from the hi-tech sector have boosted tax revenue projections higher. This explains the reduction in bond issuance and which is a positive development for the bond market. Hi-tech service exports continue to expand rapidly. Hi-tech service exports increased by 3.3% m/m in May (17.9% y/y). The improvement in the service account surplus is offsetting the worsening of the trade deficit. We expect a steady CA surplus this year while FDI is on the rise. Private consumption increases in June as Israelis stay home. Credit card purchases increased by 5.4% m/m as summer travel abroad has been drastically reduced, boosting domestic consumption. Chain store sales increased by 3.5% m/m in June. This strong growth in private consumption is somewhat inflationary in items such as leisure/hospitality. It will also support strong consumption taxes (VAT), reducing the deficit. The Poalim consumer confidence index declined in July (but remains historically high) due to the spike in infections and cancelling of furlough supports for those under 45. FX: The shekel strengthened by 0.5% against the basket in the past week and by 0.7% in all of July. Fundamentals remain shekel positive. The bond market: The MoF reduced the weekly bond issuance in August by nearly 20% to 1.5bn ILS. Domestic tradeable bond issuance will reach 4.5bn compared to redemptions of 7.7bn. E...

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