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35 percent of Israel's COVID-19 emergency aid funds have yet to be spent.

12.5 billion shekels of the 35 billion shekel emergency aid package that was meant to be utilized by July 31 as a life line for Israel's economy and citizens, never left the treasury | Worse, due to the failure to pass a budget, spending in non coronavirus-related areas has decreased

Consistent government under- spending (Design: Idea Davar)
Consistent government under- spending (Design: Idea Davar)
By Jonathan Kershenbaum

The government’s decision to allow an 82 billion shekel increase in spending over 2020 as an emergency response to COVID-19, was meant to be executed according to a fixed timetable. By the end of July, the government was meant to have spent 35 billion shekels on emergency aid to the economy and the public. Unfortunately, by the end of July the government had only used 22.5 billion of the funds available to it, meaning that 12.5 billion additional shekels have failed to be used.

The underspending may be a simple case of bad planning, where the MoF overestimated the costs of the planned emergency schemes. On the other hand, it may also be a sign that even though the treasury eventually gave in to public pressure, there is no real intention of spending the full extent of the stimulus package.

In either case, underspending indicates failure on the Treasury’s part. The emergency aid was meant to act as a life line for those who were unable to support themselves during the coronavirus crisis. Right now it's just a theory.

The dangerous shift towards external debt

Just like other governments around the world, the Israeli government has been borrowing intensively to support its coronavirus spending plans. However, it seems that the Treasury has used the crisis to push for a dramatic shift in policy: close to half of the new debt taken on in recent months is external- denominated either in dollars or euros.

Foreign debt (Design: Idea Davar)
Foreign debt (Design: Idea Davar)

Since the beginning of 2020 the government has borrowed 159.7 billion dollars, with 65 billion of those borrowed either in the US or EU. The change is staggering: as of July, 57.3% of the government’s new debt was external, as opposed to only 10.2 percent in 2019 and 31.1 percent in 2018.

Why does this matter? Internal debt is essentially money borrowed from the Israeli public through pension and investment funds. The price of internal debt is affected less by Israel’s credit rating, and increased external debt has the effect of exposing Israel to international investors and their ability to exert pressure on the government.

The invisible spending cut

The coronavirus has caused government spending to increase by 11 percent since the beginning of the year. However, the increase in overall spending has obscured the ongoing spending cut due to the fact that the government has been operating without an approved budget for over a year.

Government spending on non COVID-19 related services (Design: Idea Davar)
Government spending on non COVID-19 related services (Design: Idea Davar)

Effectively, this means that the government has been running on a 1/12 basis: capping its monthly spending at 1/12 of last year’s budget. Since the general spending tends to increase each year, this means that in real terms, spending on everything unrelated to the coronavirus has decreased by 0.5 percent.

Rising deficits due to plummeting revenue

Israel’s deficit is due to be particularly high this year, just like most countries around the world. As of the end of July the deficit was equivalent to 7.2 percent GDP, and it is expected to increase further.

This has much to do with the falling levels of government revenue. Government income fell 12.1 percent since January, and they too are expected to fall further, which will increase the level of government deficit.

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