Israel's central bank governor, Amir Yaron, has called on the government to implement responsible fiscal policies to counterbalance any further increases in the military budget.

 Lawmakers in March gave their assent to changes made in the 2024 state budget, allocating additional funds worth tens of billions of shekels for Israel's conflict with Hamas in Gaza. The conflict has been ensuing for six months.

Yaron focused on the importance of establishing a committee to assess defense needs, assessing the size of the defence budget in order to formulate a multi-year budget program considering economic ramifications. This committee should entail the participation of defence as well as civilian functions.

He also put priority on the importance of fiscal adjustments to prevent a sustained rise in the public debt-to-GDP ratio, especially with plans to boost defense spending by 20 billion shekels annually. 

The amended budget also includes provisions for compensating households and businesses affected by the conflict. 

It sets a deficit of 6.6 per cent of gross domestic product (GDP) in 2024, revised from a pre-war level of 2.25 per cent. In February, the deficit rose to 5.6 per cent over the previous 12 months from 4.8 per cent in January. 

Israel's economy faces significant challenges, Yaron stressed, which entail low labour productivity and weak basic skills that obstruct ultra-Orthodox Jewish men and Arab women from integrating into the labour market. 

Israel's economy saw a 2 per cent growth in 2023, with zero per capita GDP. 

The governor said Israel's economy entered the war with good economic fundamentals and has in the past rebounded rapidly from crises.

(With Reuters Inputs)