Israel Debt-to-GDP Level Drops to Lowest in at Least 20 Years

  • Ratio declines to 64.9% in 2015 from 66.7% in previous year
  • Low deficit, negative inflation contributed to declining ratio

Israel’s debt-to-gross domestic product ratio declined to its lowest in at least two decades in 2015, as the government posted a lower-than-planned deficit and negative inflation drove down consumer price-linked debt.

Debt-to-GDP declined to a preliminary 64.9 percent from 66.7 percent a year earlier, the Finance Ministry said in an e-mailed statement. The ratio, which is an important factor in determining a country’s credit rating, has declined from 98.3 percent in 1995, according to Bank of Israel figures. Ministry officials are meeting with foreign investors in the U.S. this week, ahead of the country’s first dollar-bond sale in 3 years.

“The decline in the debt burden and reduction in interest payments will allow us to increase budgets for education, health, welfare, and defense,” Finance Minister Moshe Kahlon said.

A former ministry chief economist said it’s too early to say the ratio will keep dropping.

One-time factors including negative inflation and currency fluctuations, drove the drop, said Michael Sarel, now head of the Kohelet Economic Forum, a research center. What’s more, the 2016 deficit ceiling of 2.9 percent of GDP is considerably higher than the actual 2015 deficit, while growth is forecast to be relatively weak, he said.

“It’s not clear that the declining trend will continue,” Sarel said.

The government aims to reduce the debt burden to about 60 percent of GDP and to this end has set declining, multiyear budget deficit limits. In 2015, the government posted a budget deficit of 2.15 percent of GDP, compared to a planned ceiling of 2.75 percent, as officials spent less than expected and revenue exceeded forecasts.

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