Bank of Israel Governor to Government: The Strength of the Shekel is Your Responsibility.. Security Spending Threatens to Increase Public Debt

SadaNews Economics - The Governor of the Bank of Israel, Professor Amir Yaron, confirmed during a session of the Knesset Finance Committee today (Wednesday) that the Israeli government bears full responsibility for addressing the repercussions of the shekel's rising value on exporters. He clarified that the role of the Bank of Israel is limited to monitoring the exchange rate from the perspective of "price stability," while the responsibility for supporting productivity or providing direct assistance to exporters affected by the currency's strength lies with the financial sector. Yaron stated: "If there is a specific problem facing some exporters due to the shekel's appreciation, the government must intervene either by supporting them or by increasing their productivity."

In a different context, the governor warned, as translated by SadaNews and published by the Hebrew newspaper Calcalist, of the dangers of adopting the Israeli Prime Minister's proposal to add 300 billion shekels to the defense budget in exchange for waiving the American aid agreement, pointing out that this would lead to an increase in the debt-to-GDP ratio in Israel to 80%. It is noteworthy that the debt-to-GDP ratio stood at 68.6% at the beginning of the year.

Yaron also reiterated his criticism of the deficit ceiling in the 2026 budget, saying: "The budget started with a deficit of 3.2% and ended with a deficit of 3.9%. It is not expected that the debt-to-GDP ratio will decrease in the upcoming budget, and in a year in which we expect to achieve growth exceeding 5%, it would be appropriate to make more efforts to reduce this ratio." He added that he expects to see more growth drivers in the 2026 budget, affirming: "They approved this budget without raising the deficit ceiling because we are capable of handling more spending. It will not be possible to meet security needs within the current budget."

The governor also referred to the previous war budgets for 2024 and 2025, stating: "The government deserves praise for the financial adjustments that were made. It is clear that more effort could have been made in structuring these adjustments, but praise is warranted."

During his speech, Yaron emphasized the long-term economic challenges facing Israel, pointing out the weakness of infrastructure, high poverty rates, and significant educational gaps. He said: "It is very dangerous and concerning to be ranked low in international classifications. The weakest among us are weaker than the weakest groups in the world. There is an urgent need to reform and review the education system."

Regarding the Haredi community, the governor explained that the percentage of the Arab community in Israel will remain stable while the Haredi community grows at an accelerated pace, emphasizing the need to ensure that more men enter the labor market. He added: "Those entering the labor market need knowledge because their salaries are low, and this knowledge relies heavily on basic education."