Summary of OECD 2011 economic review of Israel

A report by the Economic and Development Review Committee (EDRC) of the Organization for Economic Co-operation and Development (OECD) on the State of Israel was released on December 12, 2011.The report provided focus-areas where further responsiveness is desirable, and scenarios where Israel has and continues to display economic resilience.

The following materials are recommendations provided for the State of Israel by the OECD EDRC in the 2011 Report:

Israel’s recent exploration of natural gas has provided for future increased revenues, and according to the report, “Furthermore, there have been substantial new finds of offshore natural gas, which will strengthen the fiscal position, further decrease dependence in imported fuels and improve options regarding energy security”. Legislation is welcomed in order to setup a sovereign wealth fund.

  •  Israel’s GDP increased by 4.8% in 2010 and investments are growing strongly, though the report gives top priority to Israel’s high public debt, which is recommended to be reduced by more than 15% by 2020.
  • The review suggests a stronger policy commitment towards a market-based approach in the electricity sector, reforming the Israel Electricity Corporation. As noted, “plans are also being implemented that aim to raise the contribution of renewable electricity generation to 10% of aggregate supply, principally through thermo-solar, photovoltaic and wind power.”
  • The unemployment rate was noted as being the lowest point reached in history, at 5.5% in the second quarter of 2011. The participation rate was also noted as having implications to grow. Though due to recent global developments, there is a chance that these dynamics will be at risk in the near future.
  •  Following the 2009 Land Reform Bill, leaseholders in specific areas are being given the opportunity to switch to full ownership of their property, which will provide an important building block in reducing the role of central government in the housing market. The report recommends encouraging rental housing, diminishing exemptions on home owners and real estate investors, and setting legislation regarding landlords and tenants’ rights. The government is advised to remain on guard concerning housing prices.
  • The report calls for changing the taxation structure, pruning exemptions and applying higher environmental taxes. The reform of the royalty and tax regime for energy products was welcomed.
  • Concerning corporate bonds, the report mentions that regulation should be strengthened.
  • As for financial regulation, the report reiterates the significance of cooperation between different regulators, as well as recommending the separation of financial institutions from large business groups.
  • On the fiscal discipline, the report commends the new Expenditure Law, and underlines the importance of keeping the debt target for 2020 at 60%.
  • The EDRC has pointed out that there are several distinct populations in Israel that account for the majority of poor households (with high fertility rates). This concern “…reflects a failure to realize the full potential of human capital resources, and the poverty issue is therefore linked to that of the economy-wide catch-up in GDP per capita.”
  • The report points out that recycling continues to be under-developed, and that there is a need for additional programs for the separation of collection of waste and related treatment infrastructure, including a broader range of waste-to-energy solutions.

About OECD EDRC Reports

The Economic and Development Review Committee (EDRC) of the Organization for Economic Co-operation and Development (OECD) focus is mostly on policies having a potential to improve the economy’s long-run performance. This involves a wide range of policy areas including labor markets, competition, innovation, human capital, financial markets, sustainable development, social security, taxation, health care and public spending.

An Economic Survey is published every 1.5 to 2 years for each OECD member country, and for some countries that are not OECD members.

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Source: Ministry of Finance, International Affairs