Israel is enjoying strong economic growth, at 3.4 percent in 2017, supported by solid domestic demand and higher global growth. Unemployment has declined steadily, to below four percent in early 2018, supporting broad-based wage growth. Nonetheless, inflation remains below the 1–3 percent target range of the Bank of Israel (BoI), reflecting the appreciation of the shekel, increased competition including internet shopping, and government measures to lower the cost of living. The BoI has held the policy rate at 0.1 percent since February 2015 and has stated that monetary policy in Israel will remain accommodative as long as necessary to entrench inflation within the target range. Israel’s fiscal deficit was two percent of GDP in 2017—but 2.9 percent excluding one-off revenues—and public debt declined to 61 percent of GDP.
Israel’s growth is expected to reach about 3.4 percent in 2018 and remain around this level in the next few years owing to the completion of major projects. Domestic and international conditions are supportive of an increase in inflation, yet significant uncertainty remains around the timing of such a rise. Housing price increases have slowed to only two percent alongside a decline in turnover, but housing affordability remains a problem. In the longer term, however, Israel faces challenges to growth and stability from modest productivity growth despite its dynamic high-tech sector, sizable infrastructure needs that are especially evident in high traffic congestion, and high poverty partly reflecting the lower skills and labor participation of population groups that will rise as a share of the working age population in coming decades.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.