The central bank chief of Israel, Amir Yaron, has emphasized the importance of responsible fiscal policy in light of the country’s recent military budget expansion. While the government has approved additional funding for defense spending to combat Hamas in Gaza, Yaron believes that it is crucial to balance this increase with restraint in non-defense spending to prevent a long-term impact on the economy.
Yaron suggests the establishment of a committee consisting of both defense and civilian authorities to assess Israel’s defense needs and create a multi-year budget plan. This approach would ensure that any adjustments to the defense budget are made thoughtfully, taking into account the overall economic implications.
In his letter to cabinet members and parliamentarians, Yaron highlighted several challenges facing Israel’s economy, including low labor productivity and barriers to employment for specific demographics. He stressed the importance of addressing these issues alongside managing current economic challenges to promote sustainable growth.
The amended budget for 2024 includes a significant increase in defense spending, as well as provisions for compensating households and businesses affected by the conflict with Hamas. This has led to a revised deficit of 6.6% of GDP, a substantial rise from pre-war levels, indicating the impact of recent military activities on the country’s finances.
Despite facing formidable economic hurdles, Yaron remains optimistic about Israel’s capacity for sustainable growth. By implementing responsible economic policies, addressing key challenges in the labor market, and supporting growth drivers, he believes that Israel can overcome its current obstacles and thrive in the future.