Bank of Israel Criticizes Netanyahu for Budget Increase Without Funding Plan

Bank of Israel Governor Professor Amir Yaron, who also serves as the government's economic advisor by law, was not informed by Prime Minister Benjamin Netanyahu about the plan to allocate an additional 50 billion shekels to the defense budget by opening the state budget. The Bank of Israel expressed reservations about Netanyahu's decision, emphasizing that any sustained increase in expenditure requires a corresponding decision on funding sources, which is currently absent. The bank clarified that it had recommended establishing the Nagel Committee to review the defense budget but was not involved in the decision to exceed its recommendations.

Regarding the fiscal impact, the Bank of Israel stated that every 10 billion shekels increase in spending without revenue adjustments would directly increase the national debt by the same amount. This means the proposed 50 billion shekel increase cannot be absorbed without offsetting measures such as tax hikes or cuts elsewhere. The bank warned that unfunded spending would add to future debt and borrowing costs.

The Bank of Israel has long advocated for a multi-year plan to reduce the debt-to-GDP ratio, which is expected to reach about 70% this year. Governor Yaron previously highlighted the macroeconomic consequences of increasing the defense budget by approximately 350 billion shekels over the next decade and stressed the importance of returning to a downward debt trajectory. The bank reiterated that significant and ongoing defense budget increases must be accompanied by clear funding decisions.