Treasury sees Israel's inflation rate below 2% till 2022

Moshe Kahlon  photo: Moshe Milner, GPO

In a budget forecast update being presented to the government today, the Ministry of Finance has revised upwards its growth forecast for 2018.

Israel's next government, taking office in 2020, will have to make adjustments to the state budget (either spending cuts or tax hikes) to the tune of NIS 5.3 billion, the Ministry of Finance estimates in a three-year budget forecast to be presented to the government today. This amount is almost certain to grow, however, because of exigencies not included in it, chiefly the cost of forming a future government, given that the next election will take place in November 2019 at the latest. Other items that the Ministry of Finance has not taken into account are the cost of expanding the Buyer Price housing program, purchases of additional rolling stock by Israel Railways, paving of additional public transport lanes and a rise in the public transport subsidy, a NIS 700 million grant to Intel for expansion of its Kiryat Gat fab, and the cost of staging the Eurovision Song Contest, due to take place in Israel in May 2019.

The Ministry of Finance is presenting updated budget framework forecasts for 2020, 2021, and 2022 to the government today. They incorporate a new mechanism introduced following the passage of the "numerator law" which prevents the government making any decision with future budgetary consequences unless a budget source covering the planned expenditure is assured. The Ministry of Finance updates its projection twice a year, in June and November, and presents it to the government. The calculations take into account all government spending commitments, whether arising from government decisions, laws, agreements, legal rulings, or budgetary agreements between the Ministry of Finance and other ministries, but not spending to which there is as yet no commitment, even if it is almost certain to be incurred. The current update includes NIS 100 million for holocaust survivors, and a similar amount for connecting factories to the natural gas network.

The macro-economic forecast appended to the update shows the annual rate of inflation in Israel remaining below 2% until 2022. The forecast states that "the rate of inflation will converge on the middle of the target range towards end of the multi-year plan period (2022)." The government's inflation target range is 1-3%. The Ministry of Finance has also revised upwards the expected economic growth rate for 2018 from 3.2% to 3.5%, "in the light of positive developments in investment, private consumption, and exports." On investment, the Ministry of Finance cites new investment in development of natural gas reservoirs, presumably referring to the recently approved development plans for the Karish and Tanin reservoirs, and Intel's new investment program for its Kiryat Gat fab, also approved recently. The Ministry of Finance points out that its revised forecast does not include the prospect of gas exports, even though the export of gas to Jordan is due to begin in 2020 - this event will mean a further upward revision of the economic growth forecast.

Published by Globes [online], Israel business news - www.globes-online.com - on June 10, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Moshe Kahlon  photo: Moshe Milner, GPO
Moshe Kahlon photo: Moshe Milner, GPO
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