Israel must pass a 2021 state budget promptly to help prioritize spending, position the economy for growth and reduce economic uncertainty associated with the coronavirus pandemic, the International Monetary Fund said on Thursday.
The IMF, at the end of a delegation visit to Israel, said both monetary and financial policies need to remain accommodative, while fiscal policy should continue to prioritize health spending and gradually become more targeted.
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Political squabbling has prevented the passage of both the 2020 and 2021 budgets.
The IMF praised Israel for a large and rapid response to the COVID-19 crisis while "timely and decisive measures introduced by the Bank of Israel at the outset of the pandemic have helped preserve market and financial stability and access to credit."
Fiscal support to the health system, households, and businesses has also helped soften the economic impact of the pandemic, an IMF report said. That led the economy to contract less than other advanced economies in 2020 and it is projected to rebound in 2021 as long as the crisis is contained, it said.
"In this challenging environment, policies should continue to provide support to the economy, contain the risks associated with the pandemic, and promote recovery," the report said. "Fiscal policy needs to become gradually more targeted to maximize the impact of the available fiscal space [and] monetary and financial policies need to remain accommodative."
Israel's central bank at the outset of the crisis trimmed its benchmark interest rate to 0.1% from 0.25%. But policymakers have largely focused on other policies such as buying government and corporate bonds and encouraging banks to lend to small businesses through very low interest loans.
Israel's economy is projected to shrink as much as 6.5% in 2020 and recover by up to 6.5% in 2021.
The government also has approved a stimulus package of some 140 billion shekels ($42 billion) that the IMF said "strikes a balance between protecting the economy from a larger downturn and preserving some fiscal space to meet future shocks."
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