Israel’s Central Bank Chief Criticizes Netanyahu’s Budget

Israel’s central bank governor criticized the government’s budget, which was approved by parliament on Tuesday, saying it will fail to bring down debt quickly enough after a surge induced by 18 months of war.

Prime Minister Benjamin Netanyahu’s spending plan takes “significant convergence measures this year, mainly on the revenue side,” Governor Amir Yaron said in comments published on Wednesday. These, he said, “will roughly offset the increase in fixed expenditures deriving from the war.”

“However, these measures are not enough to ensure a sustained decline” in Israel’s ratio of debt to gross domestic product, Yaron said in a central bank report. That’s because some of those measures are “temporary and also due to the expected increase in structural government expenditures.”

Yaron, who’s also the government’s chief economic advisor, has frequently urged it to focus more on controlling Israel’s finances since Hamas’s attack in October 2023, which triggered a multi-front conflict with Iran-backed militias. He’s criticized Netanyahu’s coalition, the most right-wing in Israel’s history, for prioritizing religious causes over moves to boost economic growth.

“There was room for improvement in the budget composition, with an emphasis on investing in long-term growth engines, improving productivity and the education system, and reducing negative incentives to go to work,” Yaron said.

Israel’s spending and borrowing have soared since the war began, leading to several credit-rating downgrades. The economy grew at the slowest pace in over two decades last year, barring the Covid-19 pandemic. That was mainly due to labor shortages resulting from a ban on Palestinian workers entering to Israel and a mass call up of military reservists. Sectors such as tech, construction, and agriculture all suffered.

“Th economy has not yet returned to its pre-war state, and war repercussions will continue to affect it for many years to come,” Yaron said in the report.

Israel’s economy got a respite with a ceasefire in Lebanon in November and one with Hamas in mid-January. The breakdown of the latter in the past two weeks and resumption of conflict of Gaza have put pressure on Israeli assets. The shekel is down 2.8% against the dollar in the past month, making it the worst performer globally after the Turkish lira, according to data compiled by Bloomberg.

The 120-seat Israeli parliament, or Knesset, approved the budget by 66 votes to 52. Opposition figures who rejected it made similar arguments as Yaron.

Finance Minister Bezalel Smotrich said it was a program that would “support growth and allow the economy to maintain strength and prosperity.” 

The 620 billion shekel budget sets deficit target of 4.9% of GDP, lower than last year’s figure of 6.8%. It has a package of fiscal adjustments worth 35 billion shekels that includes new taxes and some spending cuts. 

Israel’s debt to GDP ratio rose to 68% last year, it’s highest in over a decade.

“The long-term consequences of the war are not limited to fiscal measures,” Yaron said. “They may also be reflected over time in the economy’s risk premium and credit rating.”

©2025 Bloomberg L.P.

This article was generated from an automated news agency feed without modifications to text.