Israeli Treasury Warns of Long-Term Dollar Decline, Urges Economic Preparations

Mahran Prozner, Israel's Budget Director at the Ministry of Finance, highlighted both strengths and underlying concerns in the Israeli economy during a discussion at the National Economic Conference hosted by Calcalist, Bank Leumi, and Clal. While praising the economy's strong performance across many sectors, he warned of significant challenges including geopolitical tensions, a large actuarial deficit in the National Insurance Institute, and the need for difficult fiscal measures to maintain positive trends.

Prozner outlined five key challenges facing Israel: economic growth, cost of living, human capital and productivity, public service, and equal opportunity. He emphasized the importance of inclusive growth that benefits all population sectors, including the Haredi and Arab communities, through economic incentives and labor market participation. He also noted the dual impact of artificial intelligence as both an opportunity and a risk.

Regarding currency concerns, Prozner predicted a continued moderate decline in the dollar exchange rate over time, urging exporters and the economy to prepare accordingly, as the government cannot provide a long-term solution for currency depreciation. On education, he stressed the need for a fundamental overhaul of the Haredi and Arab education systems, despite significant budget increases, calling for strong backing from the Prime Minister and Education Minister.

Addressing tensions with the Defense Ministry over budget allocations, Prozner denied any personal conflict and explained that the defense budget was agreed upon multiple times without breaching deficit targets. He emphasized fiscal discipline as essential to sustaining security investments. On budget oversight, he advocated for improved transparency and control mechanisms for defense spending similar to other ministries.

Finally, responding to Bank of Israel's suggestion of tax hikes in 2027, Prozner opposed raising taxes, advocating instead for a plan that reduces the debt-to-GDP ratio while supporting growth and avoiding tax increases. He acknowledged the difficulty but insisted it was the preferable path for Israel's economic future.