The Israeli Economy: The Israeli Economy: Ongoing Progress Ongoing Progress November 2007 Government of Israel
Jan 01, 2016
The Israeli Economy:The Israeli Economy:Ongoing ProgressOngoing Progress
November 2007
Government of Israel
2
GDP Growth (% per annum)
7.0%6.6%
5.4%
2.8%
4.2%
2.9%
8.9%
2.3%
5.2% 5.3% 5.2% 5.4%
4.2%
-0.4%-0.6%-1%
1%
3%
5%
7%
9%
Source: Central Bureau of Statistics and Ministry of Finance Projections
Macro Economic Performance – High Growth, Low Inflation and significantly improving Labor Market
Israel Average (4.2%)
OECD Average (3.2%)
%
3
-1.3%
-3.5%
-5.1%
-3.3%
-4.3%
-2.1%
-5.1%
5.6%
0.3%
-1.2%
-1.5%
-1.2%
-1.3%
-0.6%
1.2%
2.4%
3.3%
5.1%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Current Account as % of GDP
Sources: Central Bureau of Statistics and the Bank of Israel
Emergence of Current Account Surplus Reflects the New Dynamics of the Israeli Economy
2006
H2
– 20
07H
1 *Including the Public sector, Private sector and the Banking system
Net Inflows of Foreign Investment
( US$ billions)
12.3
4.13.2
5.4
9.1 9.5
5.1
3.6
1.7
3.9
2.0
4.8
14.3
25.8
0
4
8
12
16
20
24
2000 2001 2002 2003 2004 2005 2006
Total Foreign Investments
Foreign Direct Investments
2006:
Total FI = 18% GDP
FDI = 10% GDP
Foreign Investments At All-time Record
4
The Tel Aviv Stock Market & Long-term Government Yields, Reflect Health of the Israeli Economy
Source: Reuters and the Bank of Israel
200
300
400
500
600
700
800
900
1000
1100
1200
4
5
6
7
8
9
10
11
12
TA-25 Index and Yields on 10Y Government Fix Rate NIS Bonds
Yield on 10Y Gov. Bond
The Tel Aviv 25 Index
5
Education and R&D Underpin Israel’s High-Tech Sector, The Engine of the Economy
Source: OECD Education at a Glance. 2005& 2006
Public Expenditure on Education %) of GDP, 2004(
Civilian R&D Expenditure as % of GDP (2005)4.8 4.7 4.9 4.85.1
5.9 5.96.3 6.1
6.97.2
7.6
8.3
4
5
6
7
8
9
0.5%0.7%
1.1%1.3%
1.6%1.6% 1.8% 1.9%2.0% 2.1%2.4%
3.5% 3.7%
4.4%
0%
1%
2%
3%
4%
5%
6
Budget disciplineBudget discipline
Tax reductionTax reduction
From welfare to workFrom welfare to work
Market economy – privatization & reformsMarket economy – privatization & reforms
Clear and Consistent Economic Policy- 4 Main Pillars
7
3.2% 3.2%
0.7%
4.2%
3.6%
5.4%
3.6%
1.9%
1.0%
0.3%
3.1%
4.0%4.2%
1.6%
1.0%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007F
2008E
2009E
Source: Bank of Israel and Ministry of Finance Projections
An Impressive Budget Performance - The Product of a Prudent Fiscal Policy
Government Budget Deficit (% of GDP)
52.4% 52.2%
50.2%
48.4%
51.0%
52.2%
43.5%
52.6%
51.2%
48.1%
46.3%
45.6%
44.6%
51.0%
41%
43%
45%
47%
49%
51%
53%
55%
General Government Expenditure (% of GDP)
Deficit Ceilings
8
78.9
81.5
86.7
95.9
99.9101.7
99.8
91.9
87.1
97.5
103.3101.8102.5
104.5
75
80
85
90
95
100
105
110
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007E 2008F
Public Debt Central Gov. Debt
A Clear and Sustainable Trends of Decreasing Public Debt Ratio
Gross Public and Government Debt as % of GDP%
Assuming: Deficit of: 0.3% (2007), 1.6% (2008) and 1% (2009 and onwards)Growth of: 5.4% (2007), 4.2% (2008), and 4% (2009 and onwards)Inflation of: 2.6% (2007), 2.2% (2008) and 2% (2009 and onwards)No Privatization Proceeds from 2008 onwards
40%
50%
60%
70%
80%
90%
100%
110%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Public Debt Ratio Simulation for 2007-2025
Source: Bank of Israel and Ministry of Finance Projections
9
Tax Reduction
Year Tax rate
2003 36%
2004 35%
2005 34%
2006 31%
2007 29%
2008 27%
2009 26%
2010 25% Monthly income, NIS, 2007 prices
Average tax rate on personal incomeAverage tax rate on personal income
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
2007
2002
2010
Corporate tax rateCorporate tax rate
Source: Ministry of Finance
10
6.88 6.68
7.68
8.558.88 8.8
9.4
10.310.7
10.4
98.4
7.5 7.2
53.953.5
53.3 53.353.7
55.655.2
54.954.5
54.354.2 54.1
56.5
57.2
0
2
4
6
8
10
12
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007E 2008F
51
52
53
54
55
56
57
58
Unemployment and Participation Rate
From Welfare to Work
%%
Source: Central Bureau of Statistics and Ministry of Finance Projections
11
Oil Refinery Ashdod & Haifa
Bezeq (telecom corp)
Bank Leumi
Discount Bank
El Al Israel Airlines, Ltd
ZIM (Israel navigation corp)
Tax ReformsTax ReformsPension Pension
Fund Fund ReformsReforms
Capital Market Capital Market ReformsReforms
Investment Investment in in
InfrastructureInfrastructure
Domestic Domestic GovernmentGovernment
Bonds Bonds ReformsReforms
Sea Ports Sea Ports StructuralStructural ReformReform
Highlights of Structural Reforms and Privatization from The Last Years
12
Enhance Enhance CompetitionCompetition
In Public In Public TransportationTransportation
LandLandReformReform
Electricity Electricity Sector ReformSector Reform
Labor Market Labor Market ReformReform
Education Education Reform Reform
Many More Structural Reforms and Privatizations are on The Agenda
Capital Capital MarketMarket
committeecommittee
Israel Electric Corp.
Israel Postal Company
Israel Military Industries
Israel Aircraft Industries
Bank Leumi (The remaining 10%)
Industrial Development bank
Israel Gov’s Coins and Medals Corp.
13
Ongoing Progress of TheCapital Markets Reform – Credit Market
Source: Source: Bank of Israel and Ministry of Finance Projections
0
10
20
30
40
50
60
70
80
2000 2003 2004 2005 2006 9/2007
Bank Sources
Non-bank Substitutes
Distribution of The Business Credit
%
14
Ongoing Progress of TheCapital Markets Reform – Stock Market
Source: Source: Bank of Israel and Ministry of Finance Projections
Holding of Shares, 2000-2007
6364
1712
17
1718
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
Institutionalinvestors
GovernmentNon-residentinvestors
Public
09/2007
2006
2004
2002
2000
%
15
Distribution of Selected Items of the Long-Term Savings Institutions’ Asset Portfolio,1996 – 2006
Effect of increased exposure to capital markets and increasing diversification
%
16
Summary
Clear and consistent economic policy
Commitment to budget discipline, tax reduction and debt reduction
Commitment to structural reforms
Investing in human and capital infrastructure
Impressive economic performance 4 consecutive years
Economy has proven highly resilient to external shocks
Commitment to establish a competitive basis in the Israeli capital markets
Increasing investment flexibility help to improve the Israeli capital markets