Israelis spell budget trouble
22 November 2001
Unemployment leapt upwards in Israel between July and September,
spelling more headaches for an economy already in deep trouble.
Of an active workforce of 2.51 million people, 235,000 - or 9.3%
- were out of work in the period, the country's central statistical
That amounts to an 8% hike since the previous quarter.
For those in partial or part-time employment the situation was
even worse, with a 13% unemployment rate.
High unemployment has added to the wave of strikes hitting Israel,
although the main cause is lack of spending on public services.
The new figures pile yet more worry on the shoulders of those running
A new Budget has passed its first reading in the Knesset, or parliament,
but still faces two more stormy readings and must be passed before
the end of the year.
And with a budget deficit predicted by economists to balloon way
beyond the optimistic official predictions, the high jobless rate
will further encourage sectional - largely religious - interests
pushing for a bigger slice of the cake.
Part of the problem, observers say, is that the economy has been
hit from two directions.
First, the overall global slowdown has been disproportionately
painful for the technology companies which drove Israel to growth
of 5.9% last year.
This year's economic growth, in contrast, is expected to be a stagnant
0.5%, with industrial output falling 4%.
Israel's small domestic market means that its economy is driven
by exports, about 40% of which go to the US, with the European Union
taking in a further 30%.
Those markets are now slowing sharply.
Blood on the streets
Secondly, the 13-month intifada has depressed the economy.
Palestinians from Gaza and the West Bank are under economic blockade
The most visible economic effect has been in tourism, another major
foreign currency earner.
Last month's tourism numbers were, at 69,800, the lowest for a
The previous October, more than 150,000 tourists visited Israel.
And in a country whose citizens feel themselves to be under siege
- and where the millions of Palestinians in the occupied territories
have been rendered economically inactive by near-constant blockades
- discretionary spending is falling.
Furthermore, the ongoing fighting has distracted the government's
attention from the pressing economic problems.
Analysts say the government's intense focus on micromanaging day-to-day
military operations means the parlous state of the economy has too
often taken a back seat.
The government's own budget and economic predictions are now widely
The 215.7bn shekel (£35.6bn) budget, according to the Bank
of Israel, is based on "unreasonable" forecasts of 4%
Private forecasters find the official target of a 2.4% budget deficit
difficult to achieve.
A figure of 3-4% is much more likely, according to the consensus
view of economists, with some fearing as much as 5%
A deficit of that magnitude could spell a downgrade for Israel's
debt - on which ratings agency Fitch slapped a negative outlook
But achieving significant cuts in state spending, even with the
political will there to implement them, is viewed as a difficult
Israel's electoral system gives smaller parties significant political
sway, and Prime Minister Ariel Sharon's government is reliant on
support from the ultra-orthodox religious party, Shas.
Shas and its fellow religious parties have tended to support policies
which bring gains for their supporters.
Shas in particular has demanded an expansion of the payments which
go to large families - a disproportionate number of which are ultra-orthodox
Jews - as well as other special deals.
Attempts to boost popularity with interest groups, as well as cutting
bilateral deals with public sector workers, leave the government
with little room to implement spending cuts.