Bank of Israel sees 2020 budget deficit 13% of GDP, backs new aid package

JERUSALEM (Reuters) - Bank of Israel Governor Amir Yaron on Sunday threw his support behind a second stimulus package to help those hurt by the coronavirus outbreak despite the extra spending that is expected to boost budget deficits in the next two years.

Israel's government already approved aid of 100 billion shekels (£22.92 billion), but only about half has been allocated -- prompting a protest by thousands on Saturday night in Tel Aviv against what they said has been an inept government response to the economic crisis.

Unemployment soared to 27% after the country's partial lockdown in March but is now running at 21% as people have come back from furlough.

Prime Minister Benjamin Netanyahu last week announced a new package for Israelis who have lost livelihoods due to the coronavirus crisis, saying the measures would provide an economic safety net for the coming year.

Yaron said the fiscal cost would be 15 billion shekels in 2020 and 27 billion in 2021. That, he said, would bring the budget deficit to about 13% of gross domestic product this year and to 7% next year. Before the second stimulus package, the budget deficit was estimated at 11% of GDP, up from 3.7% in 2019.

The debt-to-GDP ratio would rise to 76% in 2020 and to 78% in 2021, from about 60% last year.

"This is the time to take advantage of the safety cushions we have to alleviate the impact of the crisis and allow the economy and public to get through it with minimal harm," Yaron said at Sunday's cabinet meeting.

He said the government has the ability to fund the programme.

The Bank of Israel, which held its benchmark interest rate at 0.1% last week while expanding its bond purchases to include corporate bonds, projects an economic contraction of 6% this year.

(Reporting by Steven Scheer; editing by Emelia Sithole-Matarise)