Israel’s Fischer Says Spending Boost Must Not Exceed 5%

Bank of Israel Governor Stanley Fischer said Israel’s economy is in “very good” shape and called on the government to cap any increase in spending this year at 5 percent.

“The macro situation is very good except for one aspect and that is the budget,” Fischer said today in a speech to students at the Ono Academic College near Tel Aviv. “We are far from the path that we hoped to be on” for reducing the deficit.

Fischer, who announced last month that he will step down at the end of June after running the central bank for eight years, said he won’t raise the benchmark interest rate as a means to rein in home prices because that would strengthen the shekel and restrain growth.

Prime Minister Benjamin Netanyahu called early elections after failing to reach an agreement inside his Cabinet on budget cuts for 2013. His Likud-Beitenu ticket came first in the Jan. 22 vote and he is negotiating with potential coalition partners to form a new government.

Israel must cut 14 billion shekels ($3.8 billion) from its proposed 2013 budget, Finance Minister Yuval Steinitz said last month. The deficit last year reached 4.2 percent of gross domestic product, more than twice the government’s target.

Fischer said that promises made by the government so far would boost 2013 spending by 10 percent if unchecked. Revenue should be increased by 6 billion shekels, he said.

The nation’s economic growth slowed to an annualized 2.5 percent in the fourth quarter, the slowest in more than three years, as exports and investment declined. Inflation slowed to 1.5 percent in January, remaining below the midpoint of the government’s 1 percent to 3 percent target for a fourth month.

To contact the reporters on this story: Alisa Odenheimer in Kiryat Ono, Israel at aodenheimer@bloomberg.net; Jonathan Ferziger in Tel Aviv at jferziger@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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