The fiscal deficit reached 3.7% GDP in 2019

ISRAEL - In Brief 06 Jan 2020 by Jonathan Katz
The fiscal deficit in 2019 exceeded the planned deficit by 12bn ILS, due to a 9.2bn undershooting of revenues and a 2.8bn overshooting in spending. Expenditures of government ministries increased by 6.3% y/y, above the original planned budget of 5.1% growth in spending.Tax revenues were up 3.5% in nominal terms in 2019. With no approved budget in place for 2020, fiscal policy will be rather tight, as ministries will receive 1/12 of the original 2019 budget per month, with no additional spending allowed. Following the establishment of a new government (following the elections in March) we expect a major fiscal consolidation scheme of some 15bn ILS (probably in mid-year), including higher taxation and lower subsidizes which will contribute about 0.4% to inflation (out of a total of 1.2% inflation forecasted for 2020). We doubt Israel's rating will be lowered (or a shift to negative outlook) as the 2019 deficit is not tremendously high, and in actuality, the public debt/GDP ratio will move lower in 2019 (below 61% in 2018), due to the sharp shekel appreciation eroding the external debt and strong nominal GDP growth of 5.7%.

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