The fiscal deficit expands rapidly

ISRAEL - In Brief 08 Nov 2023 by Jonathan Katz
The fiscal deficit expanded rapidly to 2.6% GDP in the last 12 months through October from 1.5% one month ago. The actual deficit in October reached 22.9bn ILS compare to 3.1bn in Oct 22. Expenditure of ministries expanded by 12.3% y/y, mostly due to higher defense spending. Tax revenues declined by 11% y/y in real terms (after neutralizing the tax payment postponement due to the war) due to the expected slowdown in activity. This year’s fiscal deficit is expected to reach 4% GDP increasing to 6% GDP in 2024 as both expenditures increase (supporting household on forced leave and reparations as well as defense spending) and tax revenues decline y/y on the back of slowing economic activity. This is expected to be a temporary spike in the fiscal deficit (and bond issuance), therefore having only a minor impact on bond yields.

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