Positive news for the economy: debt-to-GDP ratio updated downwards
Following growth data that surprised the economy for the better, the Ministry of Finance plans to update the debt-to-GDP ratio downwards by about 0.5%. However, the figure is still relatively high compared to the past.
The Ministry of Finance is preparing to update Israel's debt-to-GDP ratio following the growth data published this week. These data showed that the economy grew in the second quarter of the year at an annual rate of 15.4%, beating forecasts in the capital market. However, as part of the publication, previous estimates by the Central Bureau of Statistics regarding the economy's growth last year were also updated. The country's official debt-to-GDP ratio is 68.4% and it is expected to be updated downwards to 67.9%, which constitutes another positive surprise.
However, the country's debt-to-GDP ratio before the war stood at about 60% and jumped following it, while the International Monetary Fund and the Bank of Israel are calling to immediately reduce the ratio back, despite the fact that many countries in the world operate with a much higher debt than that of Israel - including Western countries with a ratio of over 100%.
The reason for this is the frequent geopolitical crises that Israel is forced to deal with, and therefore it is essential to maintain "fiscal cushions". The need to reduce the debt will be placed on the table of the next government alongside the jump in the state's interest payments, the soaring military expenditure, and the civilian expenditure which is considered particularly low.
International Monetary Fund recommendation
In the International Monetary Fund, they recommended a series of tax measures including the cancellation of the lowest tax bracket, a reduction of various tax benefits, the cancellation of the VAT exemption for vegetables and fruits, and the expansion of taxation on the use of disposable tools and sweetened beverages, as well as a further increase in VAT in order to reduce the ratio.
On the other hand, there are factors in the government who believe that the growth data together with the state's tax revenue data that surprise for the better every time can "absorb" the other budgetary needs, however, economists criticize the reliance on future growth and taxation that it is doubtful will arrive.
Nvidia effect
However, the growth data rely on the results of the Nvidia company which is located in Israel but produces and exports outside of it, so that if one deducts the company's activity which does not fully reflect the real local activity, the official growth last year was only 2.1%, compared to 3.5%.
