Jobless Israelis spell budget trouble

BBC News
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 office says.

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.

Responsibilities

The new figures pile yet more worry on the shoulders of those running Israel's economy.

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.

Slowing down

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 decade.

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.

Off beam

The government's own budget and economic predictions are now widely mistrusted.

The 215.7bn shekel (£35.6bn) budget, according to the Bank of Israel, is based on "unreasonable" forecasts of 4% growth.

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 last month.

Difficult balance

But achieving significant cuts in state spending, even with the political will there to implement them, is viewed as a difficult task.

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.