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Monday, 29 April, 2002, 15:24 GMT 16:24 UK
Israel unveils emergency economic plan
An Israeli tank on duty in the occupied territories
Conflict in the occupied territories is hurting the economy
Israel's cabinet has approved a package of emergency economic measures as the country struggles to cope with the costs of the Palestinian uprising.

The market doesn't have confidence in the economic package

Olivier Hakoune
Union Bank of Israel
The new plan reins in spending, raises some taxes and revises upwards a projected budget deficit.

Surging security costs coupled with a sharp slump in tourism has left Israel facing its worst recession in 50 years.

The deepening crisis is set push the economy into a contraction of 1% this year, according to Shlomi Attia, an economist at the Ilanot Batucha investment house.

Rising borrowing costs

But the controversial new austerity plan is not expected to help the economy in the longer term.

"The market doesn't have confidence in the economic package and doesn't believe it will solve Israel's economic problems," said Olivier Hakoune at the Union Bank of Israel.

A higher budget deficit will mean higher borrowing costs for the government.

And higher taxes will stifle consumer spending and economic growth.

Tourists by the Dead Sea
Tourism has slumped because of the fighting

The Israeli shekel slid to a record low against the dollar after the new economic plan was unveiled.

Laying the groundwork

"The government chose to approve a basket of steps largely made up of increasing the tax burden, which surely cannot create the necessary economic turnaround," said Danny Gillerman, head of the Federation of Israeli Chambers of Commerce.

While the new measures include six billion shekels ($1.23bn; 840m) of spending cuts, there are also three billion shekels of tax increases.

"The government should have taken the emergency measures needed to stabilise the economy and lay the groundwork so that if the security situation improves the economy an achieve its full growth potential," said Mr Attia.

Last year, the Israeli government spent more than twice what it had originally budgeted for.

See also:

22 Apr 02 | Business
Defence costs bloat Israeli deficit
09 Jan 02 | Business
Israeli budget overshoots
24 Apr 02 | Business
Tax fears weaken shekel
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