Overview of Israels Economy

1
Government of Israel Ministry of Finance
Overview of Israels Economy
Zvi Chalamish Chief Fiscal Officer
June 2007
2
Facts Figures
Declared independence 1948 Area 22,330 sq
km Government parliamentary democracy Population
7,100,000 Population growth 1.8 Literacy
95.4 Religion 76 Jewish, 20 Arabs Economy
advanced industrialized market economy
Source Israel Central Bureau of Statistics and
CIA Fact book
3
Presentation Overview
1.
Positioning Israel in the Global Economy
Economic Policy
2.
3.
Economic Performance
4.
Israels Debt Profile
5.
Conclusion
4
Strong and Stable Credit Ratings
A
1
/
A

Moody's A2 (Positive)
A
2
/
A
SP A- (Positive)
A
3
/
A
-
Fitch A- (Positive)
Baa
1
/
BBB

Baa
2
/
BBB
Baa
3
/
BBB
-
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
The ratings on Israel are supported by a
prosperous and growing economy, robust external
indicators, and a strong political commitment to
structural reform and long-term fiscal
consolidation. (SP February 2007)
Israel is exhibiting considerable growth of GDP
per capita, the government debt-to-GDP and
debt-to-revenue ratios have been on a declining
trend since 2004. Israeli institutions have
proved to be extremely robust in the face of
considerable external and internal shocks.
The result over time may imply a diminution of
credit risk. (Moodys, May 06)
Source Credit Rating Agencies
5
GDP Per Capita Matches Industrialized Countries
2006 per capita GDP (current prices, US dollars)
Source IMF
6
Education and RD Underpin Israels High-Tech
Sector, The Engine of the Economy
Percent of population ages 25-64 with 12 or more
years of education (2004)
Civilian RD expenditure as of GDP (2003)
Engineers per 10,000 employees (2002)
Public expenditure on education ( of GDP, 2003)
Source OECD Education at a Glance.2005 2006
7
Israels Global Hi-Tech Reputation is Reflected
in the Structure of Exports and GDP
Manufacturing Exports by Technological Intensity
Share of Information Communications
Technologies (ICT) in the Product of the Business
Sector
Source Central Bureau of Statistics
8
A Global Reputation for Technological Innovation
International technologyfirms invested in Israel
Israeli tech companies

9
Israeli Ingenuity Has Long Been Recognized by the
Elite of the Global Tech Industry

• Given Imaging - the pill with a tiny camera
  for medical purposes
• Mirabilis Instant Messaging on AOL (ICQ)
• Teva Pharmaceuticals, the largest generic
  drug-maker in the world Copaxone, the treatment
  to flight multiple sclerosis
• Comverse Technology voice massaging systems
• Ormat leading the solar power revolution
• Check Point firewall
• Arotech Corporation the electric bus

10
Full Access to Key Global Markets Enables Trade
Diversification
Exports Imports
Europe
North America
Asia
Israel
Oceania
South/ Central America
Africa
Excluding Diamonds
Other
Source Central Bureau of Statistics
Source Central Bureau of Statistics, 2005
11
Presentation Overview
1.
Positioning Israel in the Global Economy
Economic Policy
2.
3.
Economic Performance
4.
Israels Debt Profile
5.
Conclusion
12
Clear and Consistent Economic Policy
Budget discipline
Tax reduction
From welfare to work
Market economy privatization reforms
13
Disciplined Approach to Fiscal Policy Has Kept
Budget Deficit Under Control
Budget deficit and target deficit as of GDP
General government expenditure as of GDP
Source Ministry of Finance, Central Bureau of
Statistics
14
And Helped Decreasing Government Debt
Total debt as of GDP
100
86
Source Ministry of Finance, Central Bureau of
Statistics
Source Bank of Israel
15
The Reduction of Tax Burden is Expected to
Continue in the Coming Years
Corporate tax rate
Average tax rate on personal income
2002
2005
2010
V.A.T rate
Monthly income, NIS, 2005 prices
Source Ministry of Finance
16
Long-Term Government Commitment to Economic
Reforms
Developing the electricity and natural gas markets
Reducing the tax burden
Enhancing competition in the capital markets
Boosting investment in the economy
Encouraging participation in the work force
Restructuring the pension funds
17
Privatization a Key Element in Enhancing Growth

• 2006, 2007 Oil Refineries (Paz, Israel
  Company), 2.3 Billion
• 2005 Bank Leumi (Cerberus-Gabriel), 538
  Million
• 2005 Bezeq (Apax Saban), 972 Million
• 2004 Discount Bank (Bronfman), 238 Million
• 2003 - El Al Israel Airlines, Ltd. (sold through
  TASE)
• 2003 ZIM, Israel navigation company (Israel
  Corp), 113 Million

18
The Capital Market Clear and Consistent Reform
Policy

• Deregulation
• Equal tax treatment of foreign and local
  securities (2004)
• Pension Reform
• Decrease in special-bond issues to
  institutional investors (2003)
• Government Bond Reform
• Globalization of the government bond market
  and introduction of local
• and foreign primary dealers (2005)
• Privatization
• Selling of the last two government-held
  banks (2005)
• Taxation
• 0 tax on capital gains of foreign
  investors on investments made by 2008

19
Government Incentives for Foreign Investors

• Substantial tax incentives
• 10 tax on investments in designated areas
• 0 tax on mega investments in designated areas
• 0 tax on capital gains for investments by
  foreign investors to the end of 2008
• Substantial RD grants from the Chief Scientist
• An open market regulatory environment
• Liberal foreign currency regulations
• Reduction of tariffs restrictions on import
• Reforms Privatization

20
Infrastructure Projects

• Israels government is making infrastructure
  projects a top priority. The scope of these
  projects is increasing with public-private
  partnerships playing a major role. Public-private
  investment in Israeli infrastructure is expected
  to reach 6 billion across the following sectors
  transportation (rails and roads), water
  desalination and sewage treatment, construction,
  and energy.
• Ongoing projects

• Hadera Water Desalination
• Ashkelon Water Desalination
• Palmachim Water Desalination
• Beer Sheva Prison
• Israeli Natural Gas Project

• Tel Aviv Light Train
• Fast Lane to Tel Aviv
• Road No. 431
• Carmel Tunnels
• Jerusalem Light Train
• Road No. 531
• Section 18 Road No. 6

21
Presentation Overview
1.
Positioning Israel in the Global Economy
Economic Policy
2.
3.
Economic Performance
4.
Israels Debt Profile
5.
Conclusion
22
Economic Growth Rates Among the Highest in the
Western World
Growth of GDP per annum
Source Central Bureau of Statistics and the IMF
23

Inflation Under Control, Interest Rates Falling
Year-end inflation rate
Central Banks key interest rate
3.50
Source Bank of Israel
24
The Shekel, Tel Aviv Stock Market, Long-term
Government Yields, Reflect Health of Economy
The Shekel vs. US Dollar, Euro and Yen
TA-25 Index and Yields on 10Y Government Fix Rate
NIS Bonds
Euro
The Tel Aviv 25 Index
USD
Yield on 10Y Gov. Bond
Yen (100)
Source Bloomberg and the Bank of Israel
25
Government Policy and Rapid Economic Growth
Boosted Employment
Thousands
26
Current Account Surplus Strengthens Israels
External Accounts
Current account ( of GDP)
Sources Central Bureau of Statistics, Bank of
Israel
27
Foreign Investments Reach All-time Record
Net inflows of foreign investment (US billions)
Source Bank of Israel
28
Recent Notable Foreign Investments in Israel

• 2006 - M-Systems (Sandisk), 1.55 Billion
• 2006 - Mercury Interactive (Hewlett Packard's),
  4.5 Billion
• 2006 Iscar Metalworking (Berkshire Hathaway),
  4.0 Billion
• 2006 Psagot Ofek (York Capital), 280 Million
• 2005 Bank Leumi (Cerberus-Gabriel), 538
  Million
• 2005 Bezeq (Apax Saban), 972 Million
• 2004 Discount Bank (Bronfman), 238 Million

29
Geopolitical Risks Remain But Have Had Little
Impact on Israels Economy

• Israelis have a long history of coping with
  adversity and are deeply committed to Israels
  security and prosperity
• Economy has proven highly resilient to
  geopolitical shocks
• Rapid recovery from fighting with Hezbollah in
  summer of 2006 is latest example
• Investors have learned to focus on the economys
  favorable fundamentals, rather than geopolitical
  risks
• Israel remains committed to reaching a
  comprehensive peace agreement through
  negotiations
• Peace treaties have been signed with Egypt in
  1979 and Jordan in 1994
• Israels alliance with the United States is as
  healthy as ever and serves as bedrock for
  Israels security and economic prosperity

30
Presentation Overview
1.
Positioning Israel in the Global Economy
2.
Economic Performance
3.
Economic Policy
4.
Israels Debt Profile
5.
Conclusion
31
Government Debt has a Favorable Maturity
Structure and Low Reliance on Market Sources
External public sector debt, December 2006 (Total
of 31.4 bill)
Source of debt
Original term to maturity
Source Bank of Israel September 2006
32
U.S. Loan Guarantee Program - a Strong Backing
to the Israeli Economy
109th CONGRESS 2d Session - AN ACT To authorize
certain activities by the Department of State,
and for other purposes. Be it enacted by the
Senate and House of Representatives of the United
States of America in Congress assembled, (b)
Extension of Authority to Provide Loan
Guarantees- Chapter 5 of title I of the Emergency
Wartime Supplemental Appropriations Act, 2003
(Public Law 108-11), is amended in the item
relating to Loan Guarantees to Israel'-- (1) in
the matter preceding the first proviso, by
striking September 30, 2007' and inserting
September 30, 2011' and (2) in the second
proviso, by striking September 30, 2007' and
inserting September 30, 2011' Passed the House
of Representatives December 8, 2006.
33
Presentation Overview
1.
Positioning Israel in the Global Economy
Economic Policy
2.
3.
Economic Performance
4.
Israels Debt Profile
5.
Conclusion
34
Conclusion

• Israel's sovereign credit quality is sound and
  resilient
• Fundamentals compare favorably with higher-rated
  sovereigns
• Clear and consistent economic policy
• Commitment to structural reforms, underpin
  Israels sovereign credit profile and will lead
  to robust growth
• High resilience to geopolitical shocks

35
Additional Information...

• Web site addresses
• Ministry of Finance
• www.mof.gov.il
• Bank of Israel
• www.boi.gov.il
• Central Bureau of Statistics
• www.cbs.gov.il
• Contacts
• Zvi Chalamish Shirley Strifler
• Chief Fiscal Officer Chief Economist
• 212-499-5710 212-499-5717
• zvi_at_emus.gov.il shirleys_at_emus.gov.il

36
(No Transcript)