IMF Executive Board Concludes 2026 Article IV Consultation with Israel

IMF News, July 1, 2026

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Growth forecasts for 2026 revised down to 3.5 percent from 4.8 percent before the war in the Middle East.
Revision reflects a sharp contraction in the first quarter followed by a modest rebound over the remainder of the year.
Inflation is expected to rise temporarily in the near term due to higher energy prices and supply constraints despite shekel appreciation.
Risks: growth outlook tilted to the downside and inflation outlook to the upside, with deeper and more prolonged regional conflicts the key concern.
Ongoing hostilities imply defense expenditure expected to remain high and labor supply constrained by military mobilization and reduced availability of non-Israeli workers.
These pressures compound longstanding structural challenges—such as persistently low labor-market participation among certain groups—and weigh on Israel’s medium-term economic outlook.

Directors welcomed the economy’s resilience despite repeated shocks.
Directors noted elevated regional geopolitical uncertainty and long-standing structural impediments are expected to weigh on the outlook.
Renewed intensification of regional tensions remains a key downside risk.
Emphasis on the need to implement prudent policies to safeguard macroeconomic stability and advance structural reforms to boost growth potential.

Directors welcomed the authorities’ commitment to fiscal discipline.
Importance of gradual, credible fiscal consolidation to rebuild buffers and stabilize public debt.
Given elevated defense spending and already low levels of civil spending, fiscal adjustment should rely primarily on revenue measures and efforts to enhance spending efficiency.
A comprehensive review of the tax system, including tax expenditures, would help improve simplicity, efficiency, and equity.

Directors welcomed authorities’ efforts to bring inflation back to the target range.
Agreed that a moderately tight, data-dependent monetary policy stance remains appropriate to safeguard price stability amid inflationary pressures from higher energy prices and supply shocks.
Financial sector systemic risks appear contained; banks remain well-capitalized, liquid, and profitable.
Continued vigilance needed, particularly regarding banks’ real estate exposures.
Recommendations:
- Strengthen stress testing frameworks.
- Extend borrower-based measures to nonbank financial institutions.
- Careful implementation of Basel III requirements.
- Further progress on enhancing the crisis management framework, despite recent reforms to strengthen the BOI’s resolution powers.
- Continued efforts to strengthen the AML/CFT framework.

Advancing structural reforms is critical to boost potential growth and support fiscal sustainability.
Need to address persistent gaps in labor force participation and skills, particularly among fast-growing population groups.
Importance of ensuring an adequate and sufficiently skilled labor supply to maintain competitive edge in high-tech, including AI.
Strengthen active labor market policies to facilitate reskilling and labor mobility.
Directors welcomed progress in trade reforms and called for further efforts to improve product markets and infrastructure.

Output
- Real GDP growth (percent change): 2024: 1.0; 2025: 2.9; 2026: 3.5; 2027: 4.4
Employment
- Unemployment (percent): 2024: 3.0; 2025: 3.1
Prices
- Inflation (period average, percent change): 2024: 2.3; 2025: 2.1
General government finances (percent of GDP)
- Revenue: 2024: 35.6; 2025: 38.3; 2026: 38.0; 2027: 37.2
- Expenditure: 2024: 43.7; 2025: 43.5; 2026: 44.2; 2027: 42.4
- Fiscal balance: 2024: -8.1; 2025: -5.2; 2026: -6.2; 2027: -5.1
- Public debt: 2024: 67.7; 2025: 68.4; 2026: 70.1; 2027: 70.7
Central government finances (percent of GDP)
- 2024: 24.2; 2025: 26.1; 2026: 25.8; 2027: 25.2
- 2024: 31.0; 2025: 30.8; 2026: 31.1; 2027: 29.6
- 2024: -6.8; 2025: -4.7; 2026: -5.3; 2027: -4.4
Monetary and credit
- Broad money (percent change): 2024: 8.1; 2025: 6.5; 2026: …
- Credit to the private sector (percent change): 2024: 9.0; 2025: 12.8
- 3-month Treasury bill interest rate (percent): 2024: 4.3
Balance of payments
- Current account (percent of GDP): 2024: 1.5; 2025: 1.3; 2026: 1.8
- External debt (percent of GDP): 2024: 27.2; 2025: 27.0
- Foreign reserves (end-of-period, billions of US$): 2024: 214.6; 2025: 229.5
Exchange rates
- NIS per U.S. dollar (period average): 2024: 3.7
- REER (percent change): 2024: 0.3; 2025: 6.7

IMF Executive Board Concludes 2026 Article IV Consultation with Israel, July 1, 2026.