ECONOMIC TALKING POINTS

STATE OF ISRAELMINISTRY OF FINANCE

INTERNATIONAL AFFAIRS DEPARTMENT

May 6th, 2007

Contents:

Economic Figures…….Balances……………...International comparisons and additional data……….

33

1818

2424

Economic Figures

Israel’s Economy:Main Characteristics

• Export Oriented Growth• Rapid Development of Technology &

High-Tech Industries• Entrepreneurial Culture • Supportive Environment for Business• Investment & R&D Incentives

4

Economic Figures

Criteria20032004200520062007F

GDP (current prices in B$)115.4128.9129.7140.5148.5*

GDP Real Growth rate (%)1.3%4.3%5.2%5.1%5.0%

GDP per Capita (current prices, 000’$)

17.21818.719.921.8

GDP per Capita Growth rate (%)-0.5%3.0%3.2%3.2%3.2%

Exports of Goods & Services (B$)43.552.857.962.6

Imports of Goods & Services (B$)44.452.357.561.7

Unemployment Rate (%)10.7%10.4%9.0%8.4%7.4%

Inflation Rate ( CPI, end of year)-1.9%1.2%2.4%-0.1%1.0%

Current Account (% of GDP)0.5%0.4%3.3%4.9%

Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance

* Using the NIS estimate by the Ministry of Finance, Multiplied by Bank of Israel’s average US$-NIS rate for 2007.

Main Economic Indicators and forecast

5

Economic Figures

Source: Central Bureau of Statistics, Ministry of Finance

8.0

4.6

-0.9

-3.2

-0.7

-2.8

1.3

-0.3

4.3

3.0

5.2

3.4

5.1

3.2

5.0

3.2

-5.0

-3.0

-1.0

1.0

3.0

5.0

7.0

9.0

2000 2001 2002 2003 2004 2005 2006 2007F

GDP GDP per Capita

GDP and GDP per Capita (Annual % Change, in Constant Prices)

6

Economic Figures

Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance

Major GDP Components(Annual % Change, in Constant Prices)

0.8

5.0

-6.0

-2.3

0.9

-2.3

-5.5

8.2

5.5

-2.3

0.3

18.2

3.42.7

2.95.1

4.83.3

6.44.9 4.9

2.9

9.5

5.1

-10

-5

0

5

10

15

20

2002 2003 2004 2005 2006 2007F

Private Consumption Government ConsumptionInvestment in Fixed Assets Exports of Goods and Services

7

Economic Figures

GDP Growth and Exports Growth(Cumulative Rate of Growth by Period)

115%

188%

62%

120%

34%

54% 54%

100%

35%

82%

0%

50%

100%

150%

200%

1960-1969 1970-1979 1980-1989 1990-1999 1997-2006

GDP Growth Exports Growth

Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance 8

Economic Figures

Source: Central Bureau of Statistics

Exports of Goods and Services (B$)

9

27.5

11.8

30.2

13.3

36.6

16.1

40.1

17.8

43.3

19.2

0

10

20

30

40

50

60

70

2002 2003 2004 2005 2006

Goods Services

Economic Figures

Exports of Goods by Region 2006 (exc. Diamonds)

Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance 10

Africa3%

Other11%

USA34%

Asia15%

European Union31%

Rest of Europe

6%

Economic Figures

Structure of Industrial Exports

7,895

15,962 14,862 13,525 14,16617,308 18,794

21,901 23,041

7,761

5,1884,731

4,7304,836

4,277

6,3216,694

7,216

0

5,000

10,000

15,000

20,000

25,000

30,000

1995 2000 2001 2002 2003 2004 2005 2006 2007*

US

$ m

illi

on

s

traditional industries

hi-tech industries

35%

65%

23%24%

76%77%

27%

74%

26%27%

74%73%

26%

73%

75%

25% 25%

75%

Jan-Mar s.a. at annual rate *.

Economic Figures

11

Imports of Goods by Region 2006 (exc. Diamonds)

Africa1%

Rest of the World14%

USA13%

Asia19%

European Union39.5%

Rest of Europe10.5%

Source: Central Bureau of Statistics, Bank of Israel, Ministry of Finance 12

Economic Figures

Foreign Investments (B$)

Source: Ministry of Finance

1.7

4.53.1

9.6

5.2

12.3

3.7 4.1

1.73.2 3.9

5.4

2.1

9.1

4.8

9.9

14.2

24.4

0

5

10

15

20

25

1998 1999 2000 2001 2002 2003 2004 2005 2006

Direct Investments

Total Investments

13

Economic Figures

Unemployment Rate by Quarters*(% of Total Labor Force)

9.2%

9.0%8.9% 8.9%

8.8%

7.7%

8.3%

8.8%

7.5%

7.7%

7.9%

8.1%

8.3%

8.5%

8.7%

8.9%

9.1%

9.3%

2005 Q1 Q2 Q3 Q4 2006 Q1 Q2 Q3 Q4

Source: CBS 14

Economic Figures

-11

30

50

13

42

6

74

- 3

96

25

48

16

2001 2002 2003 2004 2005 2006

Business Sector Public Sector

New Employed Persons in 2006 (Change in Israeli Employed Persons, in Thousands)

Source: Ministry of Finance 15

Economic Figures

Inflation Rate (% Change in CPI, end of year)

Source: CBS, Ministry of Finance

1.3%

0.0%

1.4%

6.5%

-1.9%

1.2%

2.4%

-0.1%

1.0%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

1999 2000 2001 2002 2003 2004 2005 2006 2007F

16

Economic Figures

CriteriaEstimate for 2007

Real GDP Growth5.0%

Business GDP Growth5.6%

Exports Growth5.1%

Private Consumption Growth4.9%

Government Consumption Growth2.9%

Investment in Fixed Assets Growth9.5%

Source: Ministry of Finance

Estimated Growth of Main GDP Components 2007

17

Economic Figures

Balances

Back to contents

Source: Ministry of Finance, April 2007

Budget Deficit (% of GDP)

3.2%

0.7%

4.2%

3.6%

5.4%

3.7%

1.9%

0.9%

2.9%

0%

1%

2%

3%

4%

5%

6%

1999 2000 2001 2002 2003 2004 2005 2006 2007

19

Budget proposal

Balances

Current Account (% of GDP)

Source: Bank of Israel

-1.3% -0.6%

1.2%

2.3%

3.3%

4.9%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2001 2002 2003 2004 2005 2006

20

Balances

2.8%0.1%

-2.3%

-5.7%

-8.6%

-16.3%

-22.6%-25%

-20%

-15%

-10%

-5%

0%

5%

2000 2001 2002 2003 2004 2005 2006

Net Foreign Debt (% of GDP)

Source: Ministry of Finance 21

Balances

Source: Ministry of Finance

General Government Expenditure (% of GDP)

22

52.1%

51.4%

50.7%

50.0%

48.4%

51.1%

52.2%

51.5%

49.2%

47.4%

46.8%

45%

46%

47%

48%

49%

50%

51%

52%

53%

54%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Balances

Source: Ministry of Finance

Gross Tax Burden (% of GDP)

37.80%

36.80%

37.00%

38.1%38.2%

37.5%

36.6%36.7%

36.8%

37.2%

36.00%

37.00%

38.00%

39.00%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

23

Balances

International comparisons and additional data

Back to contents

Central Bank Interest Rates Israel vs. U.S.A (%)

Source: Bank of Israel, Federal Reserve

Bank of Israel Rate

Federal Reserve Rate

0

1

2

3

4

5

6

20

04

2 3 4 5 6 7 8 9 10

11

12

20

05

2 3 4 5 6 7 8 9 10

11

12

20

06

2 3 4 5 6 7 8 9 10

11

12

20

07

2 3 4 5

25

Additional data

Currently:

3.75%

Currently:

5.25%

Nasdaq Index & Tel Aviv 100 (monthly average)

1000

1500

2000

2500

3000

3500

4000

Jan 2003 Jul 2003 Jan 2004 Jul 2004 Jan 2005 Jul 2005 Jan 2006 Jul 2006 Jan 2007

200

300

400

500

600

700

800

900

1000Nasdaq Index (left scale)

Tel Aviv 100 (right scale)

Additional data

26

Source: Credit Rating Agencies, Accountant General

Israel’s Credit Rating 1992-2007

0

1

2

3

4

5

6

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Moody's A2 Stable S&P A- Stable Fitch A- Stable

A1/A+

A2/A

A3/A-

Baa1/BBB+

Baa2/BBB

Baa3 /BBB-

27

Additional data

Source: World Economic Forum, GCI 2006

Global Competitiveness Index, 2006Israel Ranks 15 Out of 125 Countries (2005 Rank was 23)

5958

4847

3428

2421

1815

108

64

1

42

28

Additional data

Source: World Economic Forum, GCI 2006

Business Competitiveness Index, 2006 Israel Ranks 19 Out of 121 Countries (2005 Rank was 22)

6455

49

46

30

2725

2219

1612

85

21

36

29

Additional data

Network Readyness score, 2006

Source: World Economic Forum, GCI 2006

Turkey

Greece

Italy

Spain

Portugal

France

Israel

Germany

Japan

Canada

United Kingdom

United States

Switzerland

Denmark 5.71) 1(

5.58) 5(

5.54) 7(

5.45) 9(

5.35) 11(

5.27) 14(

5.22) 16(

5.14) 18(

4.99) 23(4.48) 28(

4.35) 32(

4.19) 38(

3.98) 48(

3.86) 52(

30

Additional data

Israel’s Free Trade Agreements

USA (1985)

EFTA (1992)

Jordan (1995): Bilateral Trade Agreement

Canada (1997)

Turkey (1997)

Mexico (1999)

Romania (2000)

European Union – Association Agreement 2000

Bulgaria (2002)31

Additional data

Avoidance of Double Taxation Agreements

Belarus

Belgium

Brazil

Bulgaria

Canada

China

Czech republic

Denmark

Finland

France

Germany

Greece

Hungary

India

Jamaica

Japan

Luxembourg

Mexico

Norway

Philippines

Poland

Romania

Russia

Singapore

Slovakia

South Africa

South Korea

Spain

Sweden

Thailand

The Netherlands

Turkey

USA

32

Additional data

Also:

Austria, Ireland, Italy, Latvia, Lithuania, Switzerland, Ukraine, United Kingdom, and Uzbekistan.

Cooperation in Industrial R&D Agreements

Belgium

Canada

China

France

Hong Kong

Italy

Netherlands

Portugal

Spain

UK

USA

Singapore

Ireland

Sweden

Finland

Germany

IndiaAustria

Korea

33

Additional data

Protection of Investment Agreements

Albania

Argentina

Armenia

Belarus

Bulgaria

Croatia

Cyprus

Czech Republic

El-Salvador

Estonia

Georgia

Germany

Hungary

India

Kazakhstan

Korea

34

Additional data

Protection of Investment Agreements (con)

Turkmenistan

Ukraine

Uruguay

Uzbekistan

QIZ Agreement

Egypt

Jordan

Latvia

Lithuania

Moldova

Poland

Romania

Slovakia

Slovenia

Thailand

Turkey35

Additional data

International Organization* Memberships:

BIS | BSEC (observer) | CE (observer)

CERN (observer) | EBRD | FAO | IADB | IAEA

IBRD | ICAO | ICC | ICCt (signatory) | ICFTU

IDA | IFAD | IFC | IFRCS (observer) | ILO | IMF

IMO | Interpol | IOC | IOM | ISO | ITU | OAS (observer)

OPCW (signatory) | OSCE (partner) | PCA | UN

UNCTAD | UNECE | UNEP | UNESCO | UNHCR

UNIDO | UPU | WB | WCO | WFP | WHO | WIPO | WMO

WToO | WTrO | WTO | MIGA

* Economic Organizations 36

Additional data

Relevant Sites

Government Institutes:

Bank of Israel

Central Bureau of Statistics

Israeli Government Portal

Ministry of Finance

Israel Securities Authority

Economic News:

“The Marker”

“Globes”

32

We welcome your feedback:

Contact:

Uri Geva

International Affairs Department

Ministry of Finance, Jerusalem, Israel

urige@mof.gov.il