As published in Globes last month: Israel’s debt-to-GDP ratio decreased significantly in 2022, falling to 60.9% compared to 68% in 2021 – this is according to the first official estimate published today (Wednesday) by the Accountant General of the Ministry of Finance, Yehli Rotenberg.
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The reduction of the debt-to-GDP ratio was recorded on both sides of the equation: both due to the sharp growth of the GDP, at a rate of 6.3% – and due to the reduction of the government debt by approximately NIS 7 billion. In order to reduce the debt, the Israel National Bank made use of the extraordinary revenue surplus recorded last year to pay off old debts amounting to almost NIS 20 billion.
Throughout the decade preceding Corona, the debt-to-product ratio gradually decreased by about 11% and had already reached a rate of 59.5%. This level was historically low and allowed fiscal flexibility for the government in dealing with the crisis, among other things in providing grants to the unemployed and compensation to businesses. However, the government’s spending on the corona virus boosted the debt-to-product ratio in 2020 to 71.7%.
In other words, the efforts of a decade were erased in one year. Now, the debt has once again recovered to its desired level, and it is once again threatened by budgetary demands in the tens of billions of shekels, not only by the politicians but also by the upcoming salary agreements for public sector employees.
The Minister of Finance, Bezalel Smotrich, commented on the publication of the debt-to-GDP data: “God willing, Israel’s economy continues to march forward and demonstrate its strength and strength, which is reflected in the lowering of the GDP debt ratio and in the rapid recovery from the Corona crisis. With God’s help, we will continue to lead Israel’s economy as an island of stability , with fiscal responsibility and the development of growth engines for the benefit of the State of Israel and all its citizens.”
The Accountant General, Yehli Rotenberg, stated that: “The change in government debt, along with significant growth in economic activity, led to a sharp decrease in the debt-to-GDP ratio. The cumulative decrease in the last two years in the ratio of GDP debt and the return to the downward trend are of great importance in preserving financial soundness and fiscal flexibility, which support the country’s ranking in a challenging macroeconomic environment that is expected to accompany us in 2023 as well.”
Senior Deputy to the Accountant General and Director of the Finance Division, Gil Cohen, added that: “Returning to the debt-to-GDP environment that was recorded before the crisis, is an important indicator for the rating companies and enables fiscal flexibility, the importance of which was proven in 2020 with the outbreak of the Corona crisis, in which the strength of the Israeli economy and the debt-to-GDP ratio enabled a rapid fiscal expansion and is responsible for helping the government deal with the crisis. Also, in 2022 we started implementing the reform of the bonds intended for the pension funds, which will change the mix of fundraising and enable more flexible and efficient management of the government debt.”