Israel's debt-GDP Ratio Hits Record Low

By year-end 2007, the treasury's aim is to cut the ratio to 82-83%, which is near the level in the OECD

The national debt fell to 86% of GDP at the end of 2006, its lowest rate in Israeli history.

It is a coup for Israel's ecomonic leaders: At year-end 2005, the ratio had been 95%.

Pundits had thought the government would reduce the debt ratio to about 88%, making the figure of 86% a happy surprise.

One possibly ramification is that rating agencies might be more inclined to upgrade Israel's sovereign credit rating.
By year-end 2007, the treasury thinks the ratio can be reduced as low as 82-83%, which is near the level in the OECD nations: an average of 78 percent.

But the comparison is not quite accurate. Israeli numbers do not include the debts of local authorities, while those of other Western countries do. Adding them in would increase Israel's debt level by some 2 percent.

The European Union has set 60 percent as its target number for members, though Italy has a ratio of 120 percent of debt to GDP and Belgium 98 percent.

The reason for the drop is not only due to rapid economic growth, and because of increased revenues from privatization. Low inflation and a strong shekel, as well as a small government deficit, all contributed.

Similar factors are expected to influence the numbers in 2007, too.