Deficit is more than 9% - Rating companies will examine Israel's financial situation

The resignation of the director general of the Ministry of Finance, Keren Terner Eyal, just five months after taking office, is taking its toll on the ministry: in the next two weeks, senior officials of the Ministry of Finance and the Bank of Israel will hold meetings with the three major credit rating companies - S&P Israel's current situation and its ability to meet its obligations.
The meetings will be held this time in Zoom, and will not include shared and friendly meals with representatives of the rating companies. Generally, rating agencies do not take an interest in the retirement of any executive. Officials come and go, ministers and governors take turns, and even the analysts of the rating companies retire from time to time and make way for others. But this time, it is the resignation of the director general of the ministry shortly after her appointment, in the midst of a severe health and economic crisis, and following the retirement of two other senior officials - the Accountant General, Roni Hezekiah and the head of the budget department, Shaul Meridor.
They have already made a preliminary inquiry into the circumstances of the retirement of Hezekiah and Meridor. A knowledgeable source in the process was asked whether the rating companies receive real explanations about the circumstances of the retirement of officials. He replied, "Sure, but subtly." Anyone who thinks that this series of resignations can be exempted by "they are just officials" may miss this time, because major economic issues and especially questions about the management of economic policy in Israel are also on the agenda.
First and foremost, the Treasury and the Bank of Israel will be required to explain why Israel does not have a state budget. Not for the current year and not for next year. After all, in all the previous meetings, representatives of the Ministry of Finance and the Bank of Israel twisted when they explained that there is no state budget - because there is a political draw that led to three election campaigns within a year. After all, they explained that once a government is formed, there will be a budget. And lo and behold, there is a government and it has even been set up an emergency government to take care of Corona, but there is no budget. How do you explain to the rating agencies that the political tangle was partially allowed when Blue and White decided to join the government, but it did not advance by a millimeter the preparation of a state budget, setting priorities and building growth engines for the economy for the coming year?
Second, representatives of the Ministry of Finance and the Bank of Israel will have to explain the current division of powers and responsibilities between the National Economic Council, headed by Prof. Avi Simhon, and finance officials. Since the beginning of the crisis, Simhon has twice promoted the distribution of grants to the public, contrary to the position of the professional bureaucracy in the Ministry of Finance, according to which it is an ineffective grant that will not achieve the goal of increasing consumption. Simhon also recently raised a proposal to reduce VAT from 17% to 12% and his proposal was met with contempt. The Treasury sees him as the issuer and the bringer on Netanyahu's behalf - the one who initiates ideas that will mainly improve the boss's image, Meanwhile, Simhon's critics are abandoning one after another, and he remains in office.
Allegedly, several things happened that were supposed to convey to the rating companies that the situation was under control, despite the chaos in managing the crisis: the state built protection networks for the unemployed and workers expelled from the IDF; In all sizes, the Bank of Israel has also taken several actions to stabilize the financial markets - injecting liquidity into the banking system, regulatory easing that has made it possible to defer repayments on loans and purchasing government bonds. In addition, Israel has managed to raise debt in Israel and abroad several times and at affordable prices.
Even when examining the morbidity data, the two closures derived from them versus the cost to the economy of product loss, Israel is in a reasonable place in the middle. Not the worst, not the best. These are all moves that point to an economy that as a whole is facing the "most severe crisis in 100 years."
The rating agencies look not only at the deficit, GDP loss, debt-to-GDP ratio or unemployment, but also at the decision-making processes and their quality. Here, there is a good chance that if their Israeli interlocutors tell them the truth - a problem could arise. The reason: the truth is that the current Ministry of Finance is one of the weakest in the last two decades. The retirement of his three senior officials in two and a half months indicates this weakness.
The weakness is reflected in the transfer of some of the economic decisions to the Prime Minister's Office and the National Economic Council - such as the distribution of grants of about NIS 10 billion to the public without distinction between victims of the crisis and those who were not. Moreover, the two main tasks of the Ministry of Finance - preparing a state budget and formulating economic reforms - are not carried out because of a political tangle in which Prime Minister Benjamin Netanyahu made the budget hostage in his task of maintaining flexibility before the dissolution of the government and elections.
An equally important issue is the model of the government leaving the current closure. The eight-stage model, according to which another part of the economy is released every two weeks. There are countless debates in the government over whether it is possible to reduce the number of stages and schedules, to move businesses that are planned to open at later stages to earlier stages.
Above the model also hovers the question of its durability over 14 weeks and the fear of its disintegration along the way as a result of non-compliance, and pressures that will cause the government to fold. This conduct also has weight in assessing the ability of the current government to manage the crisis. In the last two decades, Israel has been improving its ability to repay its obligations - and thus the credit rating has improved. Now, he stands the test, not because of one statistic or another, but because of conduct.
It is doubtful whether the rating agencies will notice that a long line of key positions in the economy are held by substitutes. Not only the Budget Division and the Director General of Finance, but also the State Attorney, the Commissioner of Police, the National Emergency Authority, the IPS Commissioner, the Attorney General of the Knesset, the Director General of the Prime Minister's Office and other bodies. This is evidence of the weakening of gatekeepers. If it would bring good results - fine. But the result is that in addition to the health and economic crisis that is not unique to us, there is a serious social and political crisis in Israel that threatens Israeli society more than lowering its credit rating.s

At the background of the drama in the Ministry of Finance and the retirement of the director general of the Ministry of Finance, the Keren Terner, a discussion took place today among senior finance officials regarding the deficit that reached more than 9% in September in September, according to information from Finance Ministry. The deficit to 8.1% The jump in the deficit does not surprise the professionals, since all the corona boxes that finance the aid packages that are expected to reach NIS 125 billion (budgetary) do not come with a budget source, but are financed by increasing the deficit. 13% by the end of the year against the background of the aid packages and grants given to the public by Netanyahu and Katz and following the decrease in tax revenues.
The Ministry of Finance is expected to publish during the day the budget implementation report of the Accountant General, Roni Hezekiah, which will also specify the scope of implementation of the assistance packages, whose implementation so far has been only partial.
Last week, the Ministry of Finance announced that Hezekiah had raised 1.5 billion euros in debt. The issues were carried out for periods of two and four years and the average interest rate was less than 0.02%.
Financing the deficit through debt raising may create a challenge further down the road for the Ministry of Finance since alongside the increase in the volume of debt raised by the state, there are declines in demand from institutional bodies. Although the low interest rates in the markets have created opportunities for cheap issuances for the Treasury in recent months.
The deficit is the gap between the state's expenditures and its revenues. The higher the expenses than the revenues, the higher the deficit and the deeper the state debt. The deficit is measured as a percentage of GDP - that is, from the value of goods and services produced in the country in a given period.