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Israel Faces a Looming Financial Crisis If It Fails to Act, Former Chief Economist Warns

Israel needs to act vigorously and with immediate action to formulate a responsible 2025 budget to stave off the risk of a looming financial crisis that could drag its war-battered economy into a recession and endanger the country’s national security, a former Finance Ministry chief economist has warned.

In an assessment policy paper, Yoel Naveh, the Finance Ministry’s chief economist during a four-year tenure ending in 2018, and Lev Drucker, former senior deputy to the chief economist until 2022, cautioned that if the government fails to address the 2025 budget responsibly by implementing the needed spending cuts, tax hikes, and growth-enhancing reforms, there is a high probability that Israel will be facing a financial crisis in the next three to five years.

“We believe that official growth projections that the current policies are based on are too optimistic as they assume that everything will go back to normal with the end of the war without any permanent damage,” Drucker told Israeli media. “Policymakers must realize that even with the end of the fighting, the economy will not return to the growth path that preceded October 7.”

 “We don’t think that we will see an abrupt end of the war, but rather a gradual decline in the intensity of the security situation throughout 2025, which means that there will be a stabilization, but not the kind of accelerated recovery we saw after the coronavirus pandemic,” Drucker added.

“If the government will not act responsibly by providing forward-looking guidance to reduce the debt trajectory in these times of great uncertainty, interest rates will have to stay high for longer.” (TOI / VFI News)