Olmert pledges economic stability

2005 defict drops to 1.94% of GDP, compared to 3.4% in 2004.

olmert meeting 88 298 (photo credit: Amos Ben Gershom/GPO)
olmert meeting 88 298
(photo credit: Amos Ben Gershom/GPO)
Ehud Olmert reassured the public Sunday that Israel's economic policy would continue as normal, that the Treasury would maintain fiscal stability and discipline, and that he would continue to serve as Finance Minister. "I am currently serving as acting Prime Minister, and I hope that this part of my ministry will be short, and that I will be able to return this [responsibility] to Arik Sharon," Olmert told reporters at a briefing on last year's fiscal performance. In that presentation, it was reported that the government's 2005 deficit came to just NIS 10.75 billion - the equivalent of 1.94 percent of gross domestic product (GDP) - significantly below the NIS 18.9b., or 3.4% of GDP, originally expected and just above half the 2004 deficit. Stocks reacted positively to Olmert's comments with the TA-100 rising 2.28% and TA-25 up 2.1% on the heels of sharp losses Thursday. Finance Ministry Director-General Yossi Bachar said the stock market's initial reaction to the news of the gravity of Sharon's stroke was "very much expected," and expressed his belief that the period of uncertainty was not yet over. Nonetheless, he stressed that the stability of Israel's economy, and its ability to withstand shocks, has been shown. Referring to the 2006 budget, Olmert said he has instructed Treasury professionals to carry out fiscal operations within the legal limits and to exhibit the flexibility necessary to allow the government to provide required services. Bachar reiterated the Treasury's plan to carry out 2006 government operations (until the formal budget is approved) by dividing the 2005 budget into monthly portions, adjusted for inflation. "We would like for the budget and the Arrangements Law to be passed before elections. But in the event that this does not happen, we are prepared to demonstrate maximum flexibility until the budget is approved," Bachar said. Labor MK Shalom Simhon called upon his party to allow Olmert to pass the budget before the election to contribute to economic stability. Former finance minister and Likud Party head Binyamin Netanyahu, meanwhile, called for the budget he presented in the summer to be passed before elections as is - with a possible adjustment to the planned deficit, in consultation with the Bank of Israel - warning against making any changes in an election period. Olmert noted that "2005 ended with significant achievements for the Israeli economy," citing a positive balance of payments and the country's 5.2% GDP growth rate, surpassing economic growth in both Europe and North America. "As a result of the growth of [public] revenues and the privatization processes carried out at a very impressive pace in 2005, we can point to a very conspicuous drop in public debt," Olmert said. State revenues were NIS 1.5b. higher than predicted, led by unexpected rises in National Insurance deposits, interest receipts, and other revenue sources. Tax revenues and receipts from US grants, on the other hand, were somewhat below expectations, due partially to changes in the shekel-dollar exchange rate. Government ministry spending was NIS 3.2b. lower than planned in the original budget, reflecting a 1% real rise, in accordance with Treasury policy. Other factors contributing to the low deficit were that interest expenses were NIS 3.2b. less than expected and that a surplus of NIS 3.8b. was redeemed on government capital raising.