We expect the fiscal deficit to reach 12% GDP this year, debt/GDP: 74%

ISRAEL - In Brief 13 Oct 2020 by Jonathan Katz
In September, the fiscal deficit reached 14.9bn ILS compared to 1.9bn in September of last year. The deficit/GDP ratio in the LTM reached 9.1%, from 8.1% last month and 3.7% in 2019.In the first nine months of the year, non-Covid related expenditure increased by only 0.9% y/y, while Covid related spending reached close to 50bn ILS (not including partially guaranteed loans), or 3.7% of GDP. Tax revenues in September actually increased by 1.3% y/y (still reflecting pre-closure activity) and are down 3.4% YTD. September witnessed a sharp increase in tax revenues from corporates and self-employed. VAT collection in the first nine months of the year was similar to that of last year. Clearly, Q420 fiscal numbers will reflect the second closure, pushing expenditure higher and eroding tax revenues. Assuming this will result in a 40bn increase in the fiscal deficit relative to Q419, the total fiscal deficit this year is expected to reach 165bn ILS or 12% GDP. We expect the debt/GDP ratio to reach 74% from 60% in 2019. We note that the recent shekel appreciation against the dollar will reduce the external debt in shekel terms.

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