IMF Executive Board Concludes 2020 Article IV Consultation with Israel
IMF News, January 21, 2021
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- Published: January 21, 2021
Pandemic impact and macroeconomic developments
- The COVID-19 pandemic "has severely impacted Israel’s society and economy."
- Real GDP:
- "real GDP still contracted by 3 percent (yoy) in the first three quarters of 2020."
- 2020 projection in tabulated "Real GDP" series: -4.0 (percent change).
- Containment measures: three nation-wide lockdowns were implemented.
- Economic resilience factors: "the resilience of the Israeli economy, supported by its large high-tech sector."
- Inflation and prices:
- Overall CPI (percent change, end of period): 0.4 (2016), 0.8 (2017), -0.7 (2018), 0.5 (2019).
- Overall CPI (percent change, average): -0.5 (2016), 0.2 (2017), -0.6 (2018).
- GDP Deflator (percent change, average): 1.0 (2016), 1.3 (2017), 2.2 (2018), -0.8 (2019), 1.1 (2020), 0.7 (2021).
Policy response — fiscal, monetary, macroprudential
- Fiscal measures:
- A fiscal package of 10¼ percent of GDP for 2020 was approved by parliament.
- Package components: expanded health funding; benefits for unemployed and furloughed workers; grants for the self-employed; grants and loan guarantees for small and medium enterprises.
- Monetary and financial sector measures:
- Central bank measures to ease financial conditions, provide liquidity, and ease access to financial services and credit, including for households and SMEs.
- Macroprudential and supervisory requirements were eased, "allowing banks to utilize their capital and liquidity buffers in support of the economy."
- Public finance headline figures (percent of GDP, selected):
- Central government revenues and grants: 26.3 (2016), 26.5 (2017), 25.5 (2018), 23.1 (2019).
- Central government total expenditure: 28.4 (2016), 36.5 (2017), 34.0 (2018), 31.7 (2019).
- Central government overall balance: -2.0 (2016), -2.9 (2017), -13.2 (2018), -9.0 (2019), -6.7 (2020).
- General Government overall balance: -1.4 (2016), -1.1 (2017), -3.6 (2018), -3.9 (2019), -13.3 (2020), -9.7 (2021).
- General Government debt: 62.1 (2016), 60.6 (2017), 60.9 (2018), 60.0 (2019), 73.0 (2020), 79.1 (2021), 81.6 (2022).
- External and reserve indicators:
- Foreign reserves (eop, US$ billions): 98.4 (2016), 113.0 (2017), 115.3 (2018), 126.0 (2019), 161.3 (2020), 165.6 (2021), 169.5 (2022).
- Current account balance (percent of GDP): 3.1 (2016), 2.1 (2017).
- Gross national saving (percent of GDP): 24.4 (2016), 24.6 (2017), 23.8 (2018), 24.8 (2019), 24.7 (2020), 24.2 (2021).
Executive Board assessment and policy guidance
- Commendations and general view:
- Directors "commended the authorities for the appropriately rapid and large monetary and fiscal support" which helped soften the pandemic impact.
- Directors "welcomed the authorities’ efforts for early wide-spread vaccination, which could lead to a faster recovery."
- Fiscal policy guidance:
- "Fiscal policy should remain supportive and gradually become more targeted."
- "Prompt adoption of the 2021 budget would help prioritize spending, position the economy for growth, and reduce economic uncertainty associated with the pandemic."
- If further downside risks materialize, "fiscal support should be maintained beyond mid-2021."
- Once recovery is on firm ground, "fiscal efforts will be needed to restore pre-crisis buffers and rebuild fiscal space."
- Monetary policy and FX intervention:
- "Monetary policy should remain accommodative."
- As inflation trends toward the target band, "FX intervention should cease as a tool for managing inflation expectations and its use be limited to addressing disorderly market conditions."
- Financial sector guidance:
- Israel's financial system is "well prepared to face the impact of the pandemic."
- Banks' capital "remains strong, with substantial capacity to face large shocks."
- Unless downside risks materialize, "the minimum regulatory capital should not be lowered further, and structural buffers should eventually be restored."
- Efficient handling of potential increases in nonperforming loans would help limit debt overhang and spur capital reallocation.
- Structural reform priorities:
- Tackle pre-COVID legacies: low productivity and high inequality.
- Recommendations include better funded labor activation policies, digitalization, and education reforms to strengthen marketable skills of low-skilled workers.
- Encouragement to complete governance reforms, "particularly in procurement and AML/CFT."
Selected economic indicators and projections (2016–2022) — key series (percent change unless noted)
- Real Economy (percent change):
- Real GDP: 3.8 (2016), 3.6 (2017), 3.5 (2018), 3.4 (2019), -4.0 (2020), 4.1 (2021), 5.0 (2022).
- Domestic demand: 6.7 (2016), 3.9 (2017), -6.8 (2018), 6.4 (2019), 5.4 (2020).
- Private consumption: 3.3 (2016), 3.7 (2017), -10.0 (2018), 7.3 (2019).
- Public consumption: 4.2 (2016), 2.8 (2017), 2.3 (2018), 3.0 (2019).
- Gross capital formation: 10.4 (2016), 6.0 (2017), 2.5 (2018), -7.7 (2019), 5.6 (2020), 4.9 (2021).
- Gross fixed investment: 12.7 (2016), 4.6 (2017), 5.1 (2018), -9.2 (2019).
- Foreign demand (contribution to growth): -2.7 (2016), -0.4 (2017), 0.0 (2018), -2.1 (2019).
- Output and labor market:
- Potential GDP: 1.8 (2016).
- Output gap (percent of potential): -0.2 (2016), 0.1 (2017), 0.6 (2018), -5.2 (2019), -4.6 (2020), -3.0 (2021).
- Unemployment rate (percent): 4.8 (2016), 4.0 (2017), 4.5 (2018), 5.9 (2019).
- External position:
- Gross capital formation (percent of GDP): 21.1 (2016), 21.5 (2017), 21.7 (2018), 21.4 (2019), 20.6 (2020), 20.7 (2021).
- Foreign saving (percent of GDP): -3.3 (2016), -3.1 (2017), -3.4 (2018), -3.7 (2019), -3.5 (2020).
- Exchange rate and competitiveness:
- NIS per U.S. dollar (period average): 3.84 (2016), 3.60 (2017), 3.56 (2018), 3.45 (2019).
- Nominal effective exchange rate (2005=100): 111.3 (2016), 118.7 (2017), 123.2 (2018), 125.5 (2019).
- Real effective exchange rate (2005=100): 103.3 (2016), 108.1 (2017), 108.6 (2018), 109.1 (2019).
- Terms of trade (2010 = 100): 108.2 (2016), 104.6 (2017), 95.3 (2018), 98.7 (2019), 101.9 (2020), 100.4 (2021), 100.5 (2022).
Source: IMF Executive Board concluding statement, "IMF Executive Board Concludes 2020 Article IV Consultation with Israel", January 21, 2021.
