In a recent address at Calcalist’s National Economic Conference, Bank of Israel Governor Amir Yaron emphasized the pressing need for the next Israeli government, succeeding the upcoming election on October 27, to curtail the escalating defense spending, which currently stands at around 8% of GDP. This marks a significant rise following the recent conflict initiated by the Hamas attack on October 7, 2023.
Yaron outlined three primary challenges that the new government will encounter: managing the rising debt, which has hit approximately 70% of GDP, addressing the burgeoning defense budget, and reallocating funds towards crucial sectors like education and infrastructure to stimulate economic growth.
Additionally, he urged the integration of diverse population groups, particularly ultra-Orthodox Jews, into the workforce to bolster long-term economic health. Finance Ministry officials, including Budget Director Maharan Frozenfar, support a multi-year plan aimed at promoting growth while expressing concerns over possible tax increases in 2027 to balance state finances.
Despite recent cuts in the bank’s benchmark interest rates, Yaron indicated a cautious stance moving forward due to ongoing inflationary pressures, particularly in housing and wages. He mentioned that if stability prevails, interest rates might decrease further, projecting a potential drop to 3% by mid-next year. However, he warned that growing negative global sentiment towards Israel could impose additional economic challenges, affecting trade dynamics.
