1Berita – Israel has allocated approximately US$58 billion or Rp897 trillion (assuming an exchange rate of Rp15,470 per US dollar) to fund the strikes on Gaza.
The Central Bank of Israel has expressed concern that without control, this expenditure could become a burden on the country’s finances.
Governor of the Central Bank of Israel, Amir Yaron, stated that several measures need to be taken to address the surge in spending. These measures include cutting expenses from less urgent areas and increasing tax rates to boost national income.
“If the market perceives that Israel is moving towards prolonged debt increase, it is likely to lead to higher yields, depreciation, and inflation, necessitating a higher central bank benchmark interest rate,” Yaron said, as quoted by Reuters.
Yaron emphasized that these steps should be taken immediately. Failure to act now could have adverse effects on the economy in the future.
“Not acting now will likely harm the economy more in the future,” he expressed.
Last Monday (January 2), the central bank lowered short-term loan interest rates for the first time in the last four years. Israel became the first developed country to loosen its monetary policy.
However, Yaron urged the parliament to control the soaring expenditures during the war with Hamas.
The Ministry of Finance estimates a budget deficit of around 6 percent of economic growth (GDP) in 2024.
Finance Minister Bezalel Smotrich praised the interest rate reduction but disregarded Yaron’s call for budget discipline.
The central bank reduced the benchmark interest rate by a quarter point from 4.75 percent to 4.50 percent. Previously, the interest rate had been raised ten times in a row.
In November 2023, the inflation rate decreased to 3.3 percent compared to October’s 3.7 percent. Although lower, it still remains above Israel’s target of 1 to 3 percent.
Economic growth is projected to be 2 percent in 2023 and 2024, and 5 percent in 2025.
