IMF Executive Board Concludes 2023 Article IV Consultation with Israel
IMF News, June 15, 2023
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- Published: June 15, 2023
Summary of 2022 performance
- Real GDP increased 6.5 percent in 2022, led by domestic demand with increases in investment and consumption and a minimal contribution from the government as fiscal consolidation gained pace.
- Debt-to-GDP ratios fell to about 61 percent in 2022, down from about 71 percent during the Pandemic.
- Inflation remained high, at about 5 percent by end 2022, with the Central Bank of Israel following a tightening monetary policy.
- External demand was negative on net, as imports outgrew exports.
Near-term outlook and projections
- Staff projects real GDP growth to slow to about 2.5 percent in 2023 as households’ purchasing power moderates and firms rein in investment.
- Growth is expected to recover from 2024 and converge toward potential, with potential GDP estimated at about 3.8 percent and the output gap closing in the medium term.
- The labor market is expected to remain tight and the unemployment rate is expected to marginally increase.
- Public debt-to-GDP is projected to decrease further and stay below 60 percent.
- The external sector is projected to remain robust.
Executive Board assessment and policy recommendations
- Directors commended Israel’s remarkable economic performance and strong external position.
- Given downside risks, Directors recommended policies focused on:
- Protecting fiscal buffers.
- Reducing inflation.
- Maintaining macro-financial resilience.
- Enhancing potential growth.
- Directors cautioned that the uncertainty created by the proposed judicial reform could have a negative impact on the economy and called for a politically sustainable solution; they noted the importance of maintaining the strength of the rule of law.
- Fiscal policy:
- Generally seen as appropriate.
- Raising growth-enhancing spending in education and infrastructure should be accompanied by additional revenue measures to protect fiscal buffers.
- Strengthen the fiscal framework, including improving budgetary planning and considering establishment of a fiscal council.
- Monetary policy:
- Commended the Bank of Israel’s tight monetary policy stance given elevated inflation and a tight labor market.
- Monetary policy should remain tight until clearer signs that aggregate demand is cooling.
- Central bank readiness to tighten further if needed was welcomed.
- Market forces should be allowed to set the price of the shekel; foreign exchange interventions should be limited to addressing disorderly market conditions.
- Financial sector and macroprudential policy:
- Banking system remains broadly robust, but close monitoring of risks—particularly those related to real estate lending—is needed.
- Welcome tightening of macroprudential policies and encourage measures to raise housing supply.
- Further improvements to supervisory and AML/CFT frameworks are important.
- Structural reforms:
- Enhance potential growth and address inequality by closing skill gaps, improving infrastructure, and increasing competition.
- Education reforms and active labor market policies to better integrate minorities.
- Reduce barriers to product market competition to address rising cost of living concerns.
- Advance climate agenda commitments to reduce greenhouse gas emissions and adapt to climate change impacts.
Key statistics and selected indicators (as presented)
- Real GDP growth:
- 2018: 4.1
- 2019: 4.2
- 2020: -1.9
- 2021: 8.6
- 2022: 6.5
- 2023 (projection): 2.5
- 2024 (projection): 3.4
- 2025 (projection): 3.6
- 2026 (projection): 3.7
- 2027 (projection): 3.8
- Domestic demand (selected): 2022: 7.4; 2023 (projection): 3.9
- Gross fixed investment (selected): 2022: 9.0; 2023 (projection): 0.9
- Output gap (percent of potential): 2022: 0.1; 2023: 0.0
- Unemployment rate (percent): 2018: 4.3; 2019: 5.0
- Overall CPI (percent change, average):
- 2018: 0.8
- 2019: -0.6
- 2020: 1.5
- 2021: 4.4
- 2022: 3.5
- 2023 (projection): 2.1
- Overall CPI (percent change, end of period): 2018: -0.7; 2021: 5.3; 2022: 2.9
- Gross national saving (percent of GDP): 2022: 29.7; 2023 (projection): 29.6
- Foreign saving (percent of GDP): 2022: -4.1; 2023 (projection): -3.8
- Gross capital formation (percent of GDP): 2022: 25.8; 2023 (projection): 25.9
- Central government revenues and grants (percent of GDP): 2022: 26.7; 2023 (projection): 24.6
- Central government total expenditure (percent of GDP): 2022: 25.3; 2023 (projection): 25.7
- Central government overall balance (percent of GDP): 2018: -2.9; 2019: -11.3; 2020: -4.4; 2021: -0.9; 2022: -2.2; 2023 (projection): -2.3; 2024 (projection): -2.4
- General government debt (percent of GDP):
- 2018: 59.9
- 2019: 58.8
- 2020: 70.6
- 2021: 68.0
- 2022: 61.0
- 2023 (projection): 57.9
- 2024 (projection): 55.7
- 2025 (projection): 55.0
- 2026 (projection): 54.7
- 2027 (projection): 54.6
- 2028 (projection): 54.5
- Foreign currency external debt (percent of GDP) (selected): 2018: 8.4; 2019: 11.3; 2022: 6.1; 2023 (projection): 5.7
- Current account and trade (selected):
- Exports of goods and services (percent of GDP): 2022: 28.5; 2023 (projection): 28.2
- Imports of goods and services (percent of GDP): 2022: 28.6; 2023 (projection): 24.5
- Foreign reserves (end of period, US$ billions):
- 2019: 126.0
- 2020: 173.3
- 2021: 213.0
- 2022: 194.2
- 2023 (projection): 198.7
- 2024 (projection): 207.6
- 2025 (projection): 216.8
- 2026 (projection): 226.3
- 2027 (projection): 237.1
- 2028 (projection): 248.9
- NIS per U.S. dollar (period average): 2018: 3.59; 2019: 3.56; 2020: 3.44; 2021: 3.23; 2022: 3.36
IMF Communications Department, June 15, 2023 — Press Release No. 23/209