Israel's public debt soared in 2021, in absolute terms, and crossed the NIS 1 trillion mark

Israel's public debt soared in 2021, in absolute terms, and crossed the NIS 1 trillion mark. However, in the main index for examining Israel's financial strength, the debt-to-GDP ratio in the economy has improved, and it dropped from 71.7% in 2020 to 70.3%.
The Accountant General of the Ministry of Finance, Yahli Rotenberg, published today (Wednesday) the preliminary debt data for 2021. They show that the improvement in the debt-to-GDP ratio was recorded mainly due to the increase in GDP in the economy in 2021, in light of the economic recovery. The published figure was determined by the Ministry of Finance's estimate for total GDP in 2021, which has not yet been published by the Central Bureau of Statistics.
The debt-to-GDP ratio is significantly lower than earlier forecasts in the Ministry of Finance, the Bank of Israel and international bodies. It was estimated that in light of the continuation of the corona plague, the ratio will continue to grow - and will even reach 73% in 2021.
Debt-to-GDP ratio is a key measure used by rating agencies to determine countries' financial strength. Israel has significantly reduced the debt-to-GDP ratio by 2019, and it dropped to about 60% that year. In 2020, due to the high public expenditure under the aid programs in Corona, as well as the fall in economic output, the ratio of debt to GDP soared.
Israel managed in 2021 to significantly reduce the debt-to-GDP ratio, even in a year in which the state continued to spend significant public spending on the economy during the corona crisis, especially until July. These expenses amounted to almost NIS 60 billion in cash expenses.
Another major reason for the decline in the ratio is a slowdown in the growth rate of debt. This was due to the jump in state tax revenues (which were almost 20% higher than in 2019), along with privatization revenues, mainly the sale of land by the Israel Lands Administration, and the appreciation of the shekel against foreign currencies, which reduced foreign debt in shekel terms.
The debt-to-GDP ratio in Israel in 2021 is still high compared to the reference countries (a group of countries with similar characteristics to Israel), in which the ratio reached 54.1% that year. However, the average ratio in developed countries is significantly higher - reaching more than 100% in the past year.
In some developed countries, such as Japan and the United States, the debt-to-GDP ratio was significantly higher even earlier. In total, the debt-to-GDP ratio in Israel increased by 10.8 percentage points between 2019 and 2021, an increase slightly above the average in developed countries.
The Ministry of Finance's policy is to maintain fiscal frameworks and reduce the debt-to-GDP ratio significantly by 2022, with the aim of returning to the pre-Corona crisis.
The Minister of Finance, Avigdor Lieberman, said in response to the data: "The level of debt, together with the high growth figures, the increase in state revenues and the low level of deficit, are evidence of the strength of the Israeli economy and responsible fiscal policy."
Accountant General Rotenberg said: "The decrease in the debt-to-GDP ratio is explained by significant growth in economic activity. The estimated GDP for 2021 is NIS 1,524.5 billion, and reflects real growth of 6.7%. At the same time, the government deficit decreased to 4.5% of GDP in 2021, compared A deficit of 11.4% in 2020.
"The reduction in the government deficit in relation to GDP was mainly due to a 30% increase in government revenue. The decline in the debt-to-GDP ratio in 2021 came after an increase of about 12 percentage points in the debt-to-GDP ratio in 2020 compared to 2019. The debt to GDP in the coming years, in order to maintain fiscal flexibility and support the country's credit rating. "