Bank of Israel Governor Prof. Amir Yaron participated in yesterday’s cabinet meeting regarding the allocation of an NIS 11 billion increment to the 2020 budget.  The following are the points he raised during the discussion:


Increasing the continuance budget by NIS 11 billion, and the allocation of the increment being discussed today, comes at a late stage in the year, and after the government has operated for 8 months based on a continuance budget with all of its limitations.  As a result, many actions have been delayed or cancelled, payments have been delayed, and some of the services that the government and entities supported by the budget provide have been adversely impacted.  This increment, contrary to the COVID funds that have been approved in recent months, is focused on the government’s normal activities, and eases current functioning until the end of the year.  By virtue of the fact that the increment is part of the continuance budget, it reflects only to a small extent an adjustment of the preferences that were set out when the 2019 budget was approved (at the beginning of 2018).


I would like to shine a spotlight on the fact that further to the budgetary adjustment being discussed today, it is important that the government approve a budget for 2021 soon.  The difficulties resulting from operation with a continuance budget during 2020 are small compared with those that will be caused if the government continues to operate with a continuance budget in 2021.  While the gap between the expenditure ceiling and the expenditure amount permitted in the continuance budget in 2020 was about 3 percent, in 2021 it will be more than 6 percent.  Such a gap will lead to a significant restraint in some government activities, and even more so in the operations of entities supported by the budget.  In particular, there may be a disproportionate adverse effect on long-term growth-supporting activities in the economy—which are of particular importance at the current time—since these are underbudgeted under the rules of a continuance budget.  Moreover, without an approved budget for 2021, the budgeted entities and those working with the government may prepare in advanced for the expected restraint, thereby bringing the expected slowdown in their operations forward into 2020.


In addition to the operational advantages of approving a budget for 2021, such a process will also have tremendous importance for the markets and in the eyes of international entities monitoring the Israeli economy.  Approval of a budget will signify stability and planning, reduce uncertainty regarding economic activity through the end of 2021, and reflect how the government plans to operate during the crisis.  In the current period or shocks to the economy and to society in Israel and abroad, how things appear is very important, and the markets attribute great importance to the way in which governments and countries behave during the crisis.


Approval of a budget for 2021 will also be an opportunity to launch orderly programs to continue dealing with the crisis instead of repeatedly announcing individual measures in a “box” style.  Such a process will also enable government ministries and the entities working with them to prepare more properly for the coming year.  It is understood that the health situation and the nature of the crisis are forcing us to act in nonroutine ways, but approving a budget will be a good opportunity to include all of the processes that have already been approved and to budget within the adopted framework for programs that will contribute both to increasing demand in the short term and to increasing productivity and economic growth once we exit the crisis and thereafter.  This is similar to the increasing number of advanced economies that are presenting outlines for dealing with the ramifications of the crisis in the intermediate term.  Approving a budget for 2021 based on these lines will increase the market’s trust and their readiness to finance the budgetary needs resulting from the crisis.