Israeli Finance Minister Bezalel Smotrich made a statement on Wednesday regarding the 2023-2024 national budget, declaring it "no longer relevant" in light of the ongoing Gaza war. Smotrich indicated that the budget would need to be amended due to the unexpected crisis. He also appeared unperturbed by the recent decision of S&P Global to downgrade Israel's economic outlook from "stable" to "negative."
The Gaza conflict has taken a toll on Israel's financial resources, with Smotrich estimating the direct cost of the war to be approximately 1 billion shekels, equivalent to $246 million, per day. However, he emphasized that the indirect economic costs were still being assessed, as the nation grappled with the mass mobilization of military reservists and a barrage of rocket attacks from Gaza.
Credit rating cut
S&P Global Ratings recently downgraded Israel's credit outlook from stable to negative while keeping its credit rating at AA-. This decision came earlier than planned and followed announcements by Moody's and Fitch that Israel would be placed under review.
S&P attributed the change to the economic challenges posed by the ongoing war, which is expected to widen Israel's fiscal deficit. In the more optimistic scenario, the economy is predicted to recover to pre-war growth levels by Q1 2024, with a 1.5% growth in 2023, 0.5% in 2024, and 5% in 2025. However, the fiscal deficit is expected to rise to 5.3% of GDP in 2023-2024 due to government support measures. The situation could worsen if the war expands to other fronts, potentially leading to a credit rating cut in the next announcement in six months.
In a broadcast on Army Radio, Smotrich dismissed S&P Global's downgrade as "alarmist," and he expressed confidence that Israel would not face significant deficits despite the current crisis.
Bank of Israel head stays on for war
Smotrich also took the opportunity to commend Bank of Israel Governor Amir Yaron, who had been scheduled to step down but extended his tenure due to the ongoing crisis. Smotrich praised Yaron for going "above and beyond" in managing the nation's monetary policies during this turbulent period.
However, when pressed about whether Yaron should be retained in office on a permanent basis, the Finance Minister did not provide a definitive answer, leaving the matter open for further consideration.
Earlier this week on Sunday, Smotrich stated that his current economic plan is geared at keeping the economy afloat.
“The goal is continuity of the Israeli economy. We want the economy to function as much as possible, even during the war,” Smotrich said. “All of the priorities in the budget are changing in light of the war.”