Israel’s Debt Levels Continue to Rise, But Should We Be Worried Just Yet?

Household debt continues to rise in Israel, and it’s an interesting trend. Israel’s government has been cutting its debt level, bringing it below 60% of the GDP. The government has been rather responsible over the last eight years, but something happened in 2018 to change all of that.

In the first nine months of the year, debt levels rose 4.4%, or 33 billion shekels.

The rise in debt levels, even the slightest rise, has some economists worried because we know that in the 80s, spending was out of control. Spending in Israel hit 180% of the GDP during that time period. Total debt was set to hit 61% in 2018, up from estimates of 60.4%, so it’s not much of a rise in debt.

The biggest issue is that debt is rising at a faster pace than GDP growth, with 2018 projections of 3.5% growth. When debt levels rise faster than GDP growth, we start to see a reverse cycle. Debt has risen in terms of pure shekels over the last 15 years, but with a GDP outpacing debt, it has kept the GDP-to-debt ratios under control.

Lower debt levels are good overall because it has allowed Israel to be able to borrow at lower rates, and the money can then be put into other programs, including defense, health and education.

Israel’s household debt has also risen, and this is perhaps even more alarming. Between 2013 and 2017, credit granted rose by 148% and household debt stood at 42% in 2017. If you think this figure is bad, it could be worse. A lot of countries have household debts that exceed 100%.

As a whole, household debt has increased by 5% in 2017, and between 2008 and 2017, household debt rose by 84%.

If debt levels for households continue to rise past the rise in wages, it can lead to serious concerns if another economic slowdown occurs. Households were once timid to purchase on credit, and even in other countries, we’re seeing trends of households charging more.

Programs have been put in place, such as IVA, to help households in some countries pay off their debt over time.

Israel may also have to start offering similar programs if the market does pop. Everyone rides economic waves, and during these times, people add to their debt never expecting a slowdown to occur.

It’s a recipe for disaster.

There’s also a rise in Israel’s leasing, and this is a trend that will help the government and hurt the people. The government, primarily the Defense Ministry, has started to leave vehicles. Economists claim that this will help the government save money. For the regular person, leasing just adds to their debt levels and is something that should be followed with caution.

Should we be worried just yet about the debt levels in Israel? Probably not. We should all be proceeding with caution, living within our means and paying off our debts rather than adding to them. We’re not at a level, especially on the government side of things, that is too high to control. If our politicians and we as a society start spending responsibly, we’ll be much better off if another recession hits.