GDP ratio falls faster than expected

Israel’s debt-to-GDP ratio shrank to 68.8% at the end of 2021 from 71.7% at the end of 2020, Accountant-General Yali Rothenberg reported Wednesday. The figure is better than the initial estimate published by the Finance Ministry in January, according to which the ratio fell to 70.3%.

Although Israel’s sovereign debt fell as a proportion of GDP, in absolute terms, the national debt broke through the trillion-shekel ceiling in 2021, amounting to NIS 1,044 billion at the end of that year, compared with NIS 984b. at the end of 2020.

Over the decade before the outbreak of the COVID-19 pandemic, Israel’s debt-toGDP ratio fell 11% to 59.5%, a historic low. This gave the government fiscal flexibility in dealing with the pandemic in 2020, as pandemic-related expenditures on compensation, unemployment benefits and grants, alongside a slowdown in economic growth, set the ratio shooting upward.

According to the Finance Ministry, the government’s financing needs were lower than forecast last year because of the economy’s rapid recovery from the pandemic, leading to high tax-collection figures. The total interest expense on government debt in 2021 was NIS 40.9b., compared with NIS 38b. in 2020. Despite the rise, the declining trend in the ratio of interest payments to debt and to GDP continued. The ratio of interest to debt fell to 3.9% in 2021 from 4.1% in 2020.

“2021 saw rapid recovery of the economy from the pandemic crisis and growth in state revenues beyond the forecasts, leading to a substantial fall in the government’s deficit and a decline in the ratio of public debt to GDP from 71.7% in 2020 to 68.8% in 2021,” Rothenberg said. “The level of confidence in the Israeli economy was manifest in the latest reports of the credit-rating agencies and in the upgrade of Israel’s rating outlook to ‘Positive’ by Moody’s.”

(Globes/TNS)