The Financial Stability Report published by the Bank of Israel warns of the consequences of another closure • In Otzar Validim: "Simply not true - does not refer to the latest aid packages"

• Bank of Israel

  Photo: 

  Oren Ben Hakon

The intensity of the risk to Israel's financial stability in the first half of the year was medium to high - this is how the Bank of Israel sums up the impact of the corona on the economy. 

"The Israeli economy has undergone many wars and military operations, but has never reached such a broad cessation of economic activity and such a long period," the financial stability report published by the bank said. The government deficit is expected to reach 13% at the end of the year. - compared with data from a deficit of 3% and debt / GDP ratio of about 60% has not yet crisis happen. "state of the economy and the unemployment rate also depends on the prolongation of the worldwide recession and depth."

 explained the bank, and remind that in March-May 2020 Israel declined in real terms "The Israeli tourism industry may suffer from a decrease in the number of visitors to Israel even when restrictions on flights are lifted," the report said. "The high-tech industry is also not immune to harm, because it depends to a particularly high degree on investments, most of them from foreign entities and investors."

In the Bank's view, the main and real risk scenario is an increase in morbidity, traffic restrictions and closure, and with them a further aggravation of the damage to economic activity. The consequences of such a wave include an impairment of borrowers' repayment capacity, and in particular of loans whose repayments have been postponed, the need for another wave of incentives from the government, the implementation of which will lead to a worsening fiscal picture and a further increase in economic uncertainty.

Photo: Yoni Rickner

According to economists at the Bank of Israel's finance department, job insecurity, high unemployment rates and uncertainty in the labor market will reduce the public's expectations about its future income, and therefore demand in the economy is expected to decline. "The value of public assets, which eroded as a result of declining financial asset prices, is also expected to negatively impact private consumption in the economy," the report said. "Business sector investment, which was low compared internationally even before the crisis, is not expected to improve." 

The Bank expects that the vast majority of public companies, more than 70% of them, "are not expected to encounter cash flow difficulties and / or damage to capital." However, 80 companies, which together have a financial debt of about NIS 50 billion, are expected to have a liquidity problem or damage to capital. Only 40 companies are expected to have a cash flow shortage, and 20 are expected to have a more significant impact, which is reflected in both aspects. The construction and real estate industries and companies in the tourism and aviation industry are exposed to the highest risks.

Regarding the stability of the banks, the Bank of Israel estimates that in a scenario of moderate severity (relative to the current situation), Israel's banking system will remain stable. It can be seen that only in the most severe scenario, banks fall below the required capital adequacy. "

"Lack of professionalism"

It should be noted that one of the graphs in the report shows that government assistance to the Israeli economy is one of the lowest in the world. The Ministry of Finance denied this and claimed "unprofessionalism" on the part of the Bank of Israel as the data does not include aid plans approved in July "The Bank of Israel has published data on an international comparison of the assistance programs of the various countries, without specifying the source of the comparison and is probably based on out-of-date data from the Goldman Sachs company," the Treasury said. "The figure attributed to the State of Israel was incorrect for the previous aid package (7.1% of GDP), and certainly not for the current package (13.9% of GDP). The Ministry of Finance clarifies that the State of Israel's aid is higher than the average OECD aid. It will be possible to avoid such mistakes in the future. "

The Bank of Israel stated: "The semi-annual financial stability report published by the Bank of Israel analyzes various issues within the first half of 2020. As such, it contains illustrations that reflect the period analyzed by Bank of Israel economists. Among other things, there is an illustration of an international comparison of government assistance programs conducted by the international investment house Goldman Sachs, which indicates Israel's location close to the center of comparison between the countries. We are sorry that this is the response of the Ministry of Finance, which ignores the time frame and analysis of the report.