National debt rises 4.9% to NIS 574b.

the bank of israel (photo credit: Ariel Jerozolimski)
the bank of israel
(photo credit: Ariel Jerozolimski)
Government debt rose 4.9 percent in the first sixmonths of the year, to NIS 574 billion, from NIS 547b. at the end of2008, the Finance Ministry reported Thursday.
Economists at the Finance Ministry's GovernmentDebt Management Department said the increase was led mainly by theraising of NIS 26b. in bonds in the second quarter.
The government raised a total of NIS 60b. in the first half ofthe year, out of which NIS 48b. came from shekel-marketable bonds, NIS10b. in foreign currency debt and the remainder in non-marketableshekel debt.
Israel's ratio of debt-to-gross domestic product, a measure ofthe country's ability to repay debt, which stood at 78% in 2008, isestimated to have risen to 82% in the first half of the year as aresult of the increase in debt.
The 78% level in 2008 was already high by international standards. The average for OECD countries last year was 57% of GDP.
Last month the Bank of Israel said there was "great uncertainty"as to whether the government would be able to reduce the debt-to-GDPratio after 2010, due to plans to increase spending and cut taxes.
The government had been gradually reducing theratio, which reached a peak of 100% in 2003, in an effort to bring itdown to about 60%, which the International Monetary Fund has said isthe standard for developed countries.
One of the single largest items in the state budget is neitherdefense nor transfer payments, but debt repayment; the bigger the debt,the higher the interest payments, leaving less for the government tospend on health, education, welfare or defense.
In the government's budget proposal for this year and next,which was approved by the Knesset on July 15, the debt-to-GDP ratio isprojected to climb to 87% after five years of steadily declining debtlevels, according to Finance Ministry figures.
If spending rises as planned and tax reductions areimplemented, the ratio may rise to as high as 98.5% by 2013, assuminggrowth recovery is slow, according to a Bank of Israel forecast. Ifgrowth recovers quickly, the GDP-to-debt ratio would increase to about88% by 2013, it said.