Bank of Israel Governor Dr. Amir Yaron on Sunday threw his support behind a second stimulus package to help those hurt by the coronavirus outbreak despite the extra spending that is expected to boost budget deficits in the next two years.
Israel's economy, regularly lauded for being one of the most stable in the world, was forced to slow down to about 15% activity as the public and private sectors were shuttered in early March in an effort to stem the spread of COVID-19.
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While Israel has been gradually resuming economic activity over the past few weeks, the coronavirus crisis has triggered unprecedented unemployment of 26% – compared to 4% prior to the outbreak.
The government has already injected an unprecedented 100 billion shekel ($28 billion) into the economy as part of its financial bailout plan. Last week, Prime Minister Benjamin Netanyahu announced a new bailout package for Israelis who have lost their livelihoods due to the coronavirus crisis, saying the measures would provide an economic safety net for the coming year.
Yaron said the financial cost would be NIS 15 billion ($4.3 billion) in 2020 and NIS 27 billion ($7.8 billion) in 2021. That, he said, would bring the budget deficit to about 13% of gross domestic product this year and to 7% next year. Before the second stimulus package, the budget deficit was estimated at 11% of GDP, up from 3.7% in 2019.
The debt-to-GDP ratio would rise to 76% in 2020 and to 78% in 2021, from about 60% last year.
"This is the time to take advantage of the safety cushions we have to alleviate the impact of the crisis and allow the economy and public to get through it with minimal harm," Yaron said at Sunday's cabinet meeting.
He said the government has the ability to fund the program.
The Bank of Israel, which held its benchmark interest rate at 0.1% last week while expanding its bond purchases to include corporate bonds, projects an economic contraction of 6% this year.
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