Election turmoil plunges Israel into budget crisis

1 / 2
Israeli Prime Minister Benjamin Netanyahu speaks during a meeting of the right-wing bloc at the Knesset (Israeli parliament) in Jerusalem on November 20, 2019. (AFP)
2 / 2
Israeli Kahol Lavan (Blue and White) political alliance leader and retired General Benny Gantz, gives a statement ahead of a midnight deadline in the coastal city of Tel Aviv on November 20, 2019.(AFP)
Updated 21 November 2019

Election turmoil plunges Israel into budget crisis

  • Israel's political stalemate has lasted a year
  • No state budget means no new spending in 2020

JERUSALEM: With the prospect of a third election in Israel in less than a year, it will be well into 2020 before a new budget is passed, triggering months of cutbacks that will weigh on economic growth.
The Israeli economy has so far weathered two inconclusive ballots and a year of successive caretaker governments that were restricted from making any big decisions, from tax reforms to court appointments.
But it cannot escape the impact of no budget. Government ministries will automatically revert to their 2019 monthly allocations without an increase, making it harder to commission new roads, pay contractors and cover a growing deficit.
"Coping with it will not only affect government offices, but also the entire economy," the accountant general told a concerned parliamentary finance committee this week.
He offered the gloomy outlook as it became clear that neither Prime Minister Benjamin Netanyahu nor his rival, Benny Gantz, had enough support in parliament to form a government.
With both politicians coming up short, there now begins a 21-day period in which Israeli lawmakers can nominate any one of the Knesset's 120 lawmakers to try and establish a coalition.
If that fails too, an election is triggered within 90 days, raising the prospect for a weary electorate of going back to the polls after votes in April and September.
"There is absolute chaos in all the government ministries. That's what happens when you don't have a budget. And if they really do announce elections - it becomes a nightmare," said Amir Fuchs, a legal expert at the Israel Democracy Institute.
Defence contractors are already seeing government payments being frozen, according to an industry source. New road and rail projects, critical to ease traffic congestion, are expected to be put on hold.
"Purchases by ministries will all slow and some will even come to a halt," said Jonathan Katz, Leader Capital Markets' chief economist.

LOST OPPORTUNITIES
Uncertainty aside, the shekel remains one of the strongest currencies in the world and economic growth was a robust 4.1% in the third quarter, initial estimates showed this week. But risks have grown over the past year.
Israel's budget deficit is projected to swell to close to 4% in 2019 from 2.9% in 2018, and new taxes and spending cuts are needed to rein it in before it impacts the country's credit rating.
Government officials promised to boost investments in public transport and competition in the workforce to keep steam in the economy, but most plans have come to a standstill.
"The main issue is that of lost opportunities. More specifically, the opportunity to make much needed structural changes in the economy," said Bank Leumi chief economist Gil Bufman.
The OECD on Thursday cut its economic growth forecast for Israel to 2.9% in 2020, from a previous estimate of 3.3%, and forecast a similar rate in 2021.
It blamed the global slowdown, but also noted that "intensifying structural reforms...is crucial to lower the large social disparities and boost productivity".
The OECD also called for tax reform to increase revenue, something impossible without a government in place.
The Bank of Israel is expected to cut its key interest rate next week for the first time since 2015, with most economists polled by Reuters citing the global slowdown and an over-appreciation in the shekel.


Iran kicks off ground forces drill on coast of Gulf of Oman

Updated 19 January 2021

Iran kicks off ground forces drill on coast of Gulf of Oman

  • Commando units and airborne infantry were participating in the annual exercise along with air assets

TEHRAN: Iran’s military kicked off a ground forces drill on Tuesday along the coast of the Gulf of Oman, state TV reported, the latest in a series of snap exercises that the country is holding amid escalating tensions over its nuclear program and Washington’s pressure campaign against Tehran.
According to the report, commando units and airborne infantry were participating in the annual exercise, along with fighter jets, helicopters and military transport aircraft. Iran’s National Army chief Abdolrahim Mousavi was overseeing the drill.
Iran has recently stepped up military drills as part of an effort to pressure President-elect Joe Biden over the nuclear deal that President Donald Trump pulled out of. Biden has said the US could rejoin the multinational accord meant to contain Iran’s nuclear program.
On Saturday, Iran’s paramilitary Revolutionary Guard conducted a drill, launching anti-warship ballistic missiles at a simulated target at a distance of some 1,800 kilometers (1,120 miles) in the Indian Ocean, a day after the Guard’s aerospace division launched surface-to-surface ballistic missiles and drones against “hypothetical enemy bases” in the country’s vast central desert.
Last Thursday, Iran’s navy fired cruise missiles as part of a naval drill in the Gulf of Oman, under surveillance of what appeared to be a US nuclear submarine. Earlier last week, the Guard’s affiliated forces carried out a limited maneuver in the Arabian Gulf after a massive, drones-only drill across half of the country earlier in January.
Tensions between Washington and Tehran have increased amid a series of incidents stemming from Trump’s unilateral withdrawal from Iran’s nuclear deal with world powers. In the final days of the Trump administration, Tehran seized a South Korean oil tanker and begun enriching uranium closer to weapons-grade levels, while the US sent B-52 bombers, the USS Nimitz aircraft carrier and a nuclear submarine into the region.
Trump in 2018 unilaterally withdrew the US from Iran’s nuclear deal, in which Tehran had agreed to limit its uranium enrichment in exchange for the lifting of economic sanctions. Trump cited Iran’s ballistic missile program among other issues in withdrawing from the accord.
When the US then stepped up economic sanctions, Iran gradually abandoned the limits that the deal had imposed on its nuclear development.