The International Monetary Fund (IMF) has released its annual report on the Israeli economy for 2009.

The International Monetary Fund (IMF) has released its annual report on the Israeli economy for 2009.
Below is the summary of the Executive Board's assessment of 15/1/10.
Directors observed that the resilience of the Israeli economy during the global crisis reflected strong policy responses, robust fundamentals, prudent bank supervision, public debt reduction, and structural reforms in recent years.
Directors cautioned, however, that the global outlook remains highly uncertain, and the slower medium-term global growth would have adverse implications for Israel’s potential growth rate. They therefore agreed that long-term anchors in Israel’s policy frameworks should be strengthened to allow a flexible response of policies to short-term developments and to stimulate long-term supply. Directors welcomed the various steps that have been taken in this direction--including the adoption of a declining target path for fiscal deficits, the recent tightening of the monetary stance, steps towards adoption of the new Law for the Bank of Israel, and various actions to bolster prudential supervision.
At the same time, Directors recognized that challenges remain. The credibility of the new deficit ceiling rules has yet to be fully established. Public debt is high and is expected to rise in the near term before resuming its downward track. Although economic growth has resumed relatively early, upward pressures on the shekel could pose new risks. In this light, Directors underscored that further efforts are needed to address downside risks—notably, moderation in the forthcoming public sector wage settlements, including as a signal to private sector settlements.
Directors noted the importance of strengthening the fiscal framework. Steps to reconcile aggregate spending ceilings with the sum of undertakings on specific programs should be a priority. A reform of the fiscal rules—with the adoption of a framework anchored by explicit medium-term debt targets—would help establish the priority assigned to debt reduction and allow fiscal flexibility in the short term. This should be accompanied by multi-year spending ceilings with appropriate countercyclical properties. Strengthened medium-term budget planning would reinforce credibility and improve spending efficiency.
Given economic recovery and the history of high inflation, Directors welcomed the steps taken to begin withdrawal from unconventional monetary policy measures—including preprogrammed foreign exchange intervention—and to increase interest rates. They noted the authorities’ commitment to avoid targeting specific levels of the exchange rate. Discretionary interventions should be formally terminated, for all but the most exceptional market circumstances, once the policy interest rate is well above its effective floor on a sustained basis. Directors urged an early completion of all steps to adopt the Bank of Israel Law.
While noting that the Israeli banking system has weathered the crisis well, Directors saw scope for a further strengthening of the banking prudential framework. Comprehensive banking stress tests, regular publication of a financial stability report by the Bank of Israel, and closer coordination among various regulators would all strengthen transparency and stability. Some Directors recommended consideration of a formal deposit insurance scheme.
Directors welcomed the priority attached by the authorities to effective supervision of the non-banking sector, noting a need to strengthen the budget, staff, and autonomy of the non-bank regulators. In this context, separation of the pension and insurance regulator from the Ministry of Finance would reflect international best practice. Regular publication of risk analyses by non-bank regulators was also encouraged.
The Full report and the Public Information Notice are available on the IMF website,