Israel Won’t Cut Expenditure If Deficit Remains Below 4%

Israel’s deficit is likely to be around 3 percent to 3.5 percent of gross domestic product this year and next and the government won’t cut spending as long as it remains below 4 percent, the finance minister said today.

“If the deficit is between 3 and 4 percent, we will make no changes in the expenditure level,” Finance Minister Yuval Steinitz said in an interview at a Bloomberg Link Sovereign Debt Conference in Frankfurt today. “If it will be much beyond, of course we will have to make an adjustment.”

Slowing growth is expected to reduce tax receipts this year, bringing the budget deficit to 3.3 percent of GDP compared with a planned 2 percent ceiling, according to a Bank of Israel forecast. The International Monetary Fund said in a February report that a return to the planned 1.5 percent deficit in 2013 would be “unduly contractionary.”

Israel’s economy expanded an annualized 3.2 percent in the fourth quarter, the slowest pace since 2009, as exports dropped an annualized 7 percent. More than 40 percent of Israel’s GDP is from sales abroad, with the U.S. and Europe the two largest markets. The Bank of Israel is forecasting 3.2 percent growth this year, after an expansion of 4.7 percent last year.

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