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As Of Filer Filing For·On·As Docs:Size Issuer Agent 1/07/16 Israel, State Of 18-K/A 12/31/14 3:196K Vintage/FA |
Document/Exhibit Description Pages Size
1: 18-K/A Amendment to Annual Report by a Foreign Government HTML 13K
or Political Subdivision
2: EX-99.D-1 Exhibit D-1 HTML 64K
3: EX-99.G Exhibit G HTML 58K
Exhibit D-1
SUMMARY INFORMATION AND RECENT DEVELOPMENTS
The information included in this section supplements the information about the State contained in the State’s Annual Report for 2014 on Form 18-K filed with the SEC on June 30, 2015, as amended from time to time. To the extent the information in this section is inconsistent with the information contained in the Annual Report for 2014, as amended from time to time, through the date hereof, the information in this section supersedes and replaces such information. Capitalized terms not defined in this section have the meanings ascribed to them in the Annual Report for 2014. This section is not complete and may not contain all the information that you should consider. You should read the entire Annual Report and any supplement carefully. Totals in certain tables may differ from the sum of the individual items in such tables due to rounding. Unless otherwise specified, amounts in NIS or US$ are given in current prices without adjustment for inflation. Figures in this section are as of January 7, 2016, except as otherwise indicated.
Economic Developments
In August 2013, the Central Bureau of Statistics (“CBS”) adopted the United Nations System of National Accounts as revised in 2008 (“SNA 2008”) due to a number of major changes that affected the various data series with respect to values as well as percentages of change between periods. The data series beginning in 2006 was revised for the publication of the 2013 Statistical Abstract. The series from 1995 onwards was revised in August 2014. The revisions are in accordance with the changes to the SNA 2008 which has been accepted globally and includes changes in the measurement of the annual gross domestic product (“GDP”). Some of the main changes in the SNA 2008 applicable to Israel included: (i) recording research and development as fixed capital formation, (ii) measurement of income from financial intermediation, (iii) recording the Central Bank’s output, and (iv) recording of products for further processing in the balance of payments. The process of fully implementing SNA 2008 in Israel will take several years and will be accompanied by additional adjustments to the Balance of Payments Manual 6 (“BPM6”) and the new international merchandise trade statistics guide. Further changes have been reflected in the classification of economic activities in Israel, as the classification is in accordance with the new International Standard Industrial Classification (“ISIC Rev4”). Moreover, there has been integration of the 2006 input-output tables that describe the relationships between various industries, as well as between the industries and the final uses (private consumption, general government consumption, fixed capital formation and exports).
These methodology changes resulted in a restatement of the growth rates for 1995 through 2012, as well as certain other indicators including the debt-to-GDP ratio and the budget deficit as a percentage of GDP. Therefore, any economic data deriving from such growth rates and/or GDP figures calculated according to the methodology in place prior to August 2013 may not be directly comparable to the data deriving from the growth rates and/or GDP figures calculated according to the new methodology implemented by the Central Bureau of Statistics.
The Israeli economy grew at a pace of 2.6% in 2014, lower than the growth rate of 3.3% in 2013. The plateau in growth during this period can be attributed to exogenous factors including the slowdown in economies around the world, which contributed to the slowdown in Israeli exports, the appreciation of the Israeli NIS during the first half of 2014 and Operation Protective Edge which took place in July and August 2014 and weighed on the economy. In 2015, GDP increased 2.3%, 0.2% and 2.0% in the first, second and third quarters, respectively, in each case compared to the previous quarter.
According to the estimates for the year 2015, GDP is expected to amount to NIS 1.15 trillion, presenting real growth of 2.3%, relative to 2014.
The budget and economic plan for the fiscal years of 2015 and 2016 was approved by the Knesset on November 19, 2015, ending the temporary measures managed by the Accountant General in the Ministry of Finance, where the expenditure limit for each month was one-twelfth of the 2014 budget (linked to the consumer price index (“CPI”) rate). In the approved budget, the deficit target is set to 2.9% of GDP for 2015 and 2016, but the actual deficit for 2015 is expected to be less than 2.5% of GDP.
In 2014, the Government continued its debt-reduction policy, reducing Government debt as a percentage of GDP by 0.5%, to a level of 65.4%. Public debt (including local authorities’ debt) as a percentage of GDP continued its declining path, falling by 0.5% relative to 2013 to 66.7% at the end of 2014. After a deviation from the budget deficit target in 2012 (the actual budget deficit amounted to 3.9% of GDP during 2012 compared to a target of 2.0% of GDP), the actual budget deficit in 2013 was reduced to 3.1% of GDP, significantly below the 4.65% of GDP deficit target. In 2014, tax revenues were higher than expected, due in part to one-time sources of revenue, including the taxation of “trapped profits,” legislative changes and lower-than-expected expenditures. This led to a 2.73% budget deficit for 2014. As part of the budget and economic plan for fiscal years 2015 and 2016, the Government set the budget deficit target at 2.9% of GDP for each year.
The inflation rate in 2014 was -0.2% at year end, below the Bank of Israel’s target range of 1% to 3%. The inflation forecast for 2015 is -0.9% at year-end, below the target range, as the CPI decreased between November 2014 and November 2015 by 0.9%. The NIS/USD exchange rate as of December 31, 2014 stood at 3.889, which represents a depreciation of 12.0% during 2014. The NIS/USD exchange rate as of December 31, 2015 was 3.902, a slight depreciation relative to December 31, 2014. During 2015, there was no change in Israel’s foreign currency credit rating from Standard & Poor’s (“S&P”) (A+ (Stable)), Moody’s Investor Services (A1 (Stable)) or Fitch Ratings (A (Stable)). In November 2013, Fitch Ratings revised the Outlook on Israel’s Long-Term Foreign-Currency IDR to Positive from Stable, reflecting confidence in the turnaround in the fiscal position and the Government’s commitment to a credible medium-term path for further deficit reduction. In November 2014, Fitch revised the Outlook on Israel’s Long-Term Foreign-Currency IDR back to Stable, following their view that the fiscal consolidation was set back by the effects of Operation Protective Edge during the third quarter of 2014.
Israel’s economy continues to be affected by current global economic conditions and the slow-growth climate in Europe. Europe continues to face uncertainty as many “eurozone” countries face moderate to low growth and inflation close to zero. The continued sluggish growth in the European Union (EU), which is one of Israel’s major trade partners, could have a material adverse impact on Israel’s balance of trade and thereby adversely affect Israel’s financial condition. Since late 2009, several “eurozone” governments, including Greece, Spain, Italy, Ireland, Portugal, France and Cyprus, have experienced rising national debt levels coupled with the downgrade of the credit ratings of their government debt. As a result, there has been significant price volatility in the secondary market for sovereign debt of European and other nations. Additionally, speculation regarding the inability of Greece and other “eurozone” governments to pay their national debts remains uncertain, although these concerns have eased in recent months. Another global economic condition that has had a negative impact on the Israeli economy is the slowdown in key emerging economies, including China and Brazil, which has contributed to the slowdown in Israeli exports.
Although Israel’s economy has sustained moderate rates of growth in recent years, there can be no assurance that Israel’s economy will continue to grow in a prolonged negative global economic climate.
Balance of Payments and Foreign Trade
Israel had a current account surplus of 3.7% of GDP in 2014. This surplus follows twelve years of a positive surplus in the current account. The current account balance decreased steadily from the second half of 2010 through the first quarter of 2012. This decrease was partially attributable to the cessation of natural gas flowing from Egypt and the slowdown in the extraction of natural gas from Yam Tethis reservoir, the combined effect of which required Israel to import expensive alternative fuels during 2011 and 2012. The production of natural gas from the Tamar reservoir, which started in late March 2013, and the decline in fuel prices since the second half of 2012, contributed to an improvement in the current account balance since the second half of 2012 and into 2013, 2014 and 2015. In the first half of 2014, the current account surplus was 4.6%. In the third quarter of 2014, a sharp decrease of the surplus was recorded, mainly due to the negative effects of Operation Protective Edge. In the fourth quarter of 2014, there was an improvement in the current account surplus, but the surplus remained lower than the levels recorded in the first half of 2014.
During the first three quarters of 2015, the upward trend in the current account surplus continued, as the surplus amounted to 3.5%, 4.7% and 5.1% of GDP in the first, second and third quarters, respectively. The third quarter figure was the highest surplus recorded since 2010.
During 2014, exports of goods and services continued their upward trend, and imports of goods and services increased. Thus, in 2014, Israel recorded a net-export surplus of $5.0 billion, slightly lower than the 2013 surplus of $5.2 billion. Compared to 2013, exports in real NIS terms grew moderately by 1.5% in 2014, and imports increased by 3.0%. The growth in exports of goods during 2014 was reflected in an increase of exports to the United States (6.1%), to the EU (2.7%) and to Asia (4.1%). Exports to other destinations decreased by 0.5% in 2014. Accordingly, the share of exports to the United States increased by 0.7% (from 26.2% in 2013 to 26.9% in 2014), while the share of exports to other destinations decreased by 0.8% (from 21.4% in 2013 to 20.6% in 2014). The share of exports to the EU (27.4% in 2013 and 27.2% in 2014) and to Asia (25.0% in 2013 and 25.2% in 2014) remained almost unchanged.
During the first, second and third quarters of 2015, exports of goods in current USD terms decreased by 3.1%, 5.3% and 0.2%, respectively, in each case compared to the previous quarter. At the same time, imports of goods also recorded a downward trend, as imports decreased by 4.9%, 6.6%, and 4.9% in the first, second and third quarters of 2015, respectively, in each case compared to the previous quarter. The growth of imports in 2015 is expected to be limited due to the local production of natural gas which will offset the imports of certain energy-related products and the decline in the commodities' prices, and in particular energy prices.
On March 30, 2013, natural gas production at the Tamar reservoir began. The gas flowing from Tamar is being used mainly for domestic electricity production and has led to a significant decrease in energy-related imports. Following the beginning of gas production from Tamar, there were appreciation pressures on the NIS, leading the Bank of Israel to intervene in the foreign exchange market for the first time since 2011. Since the intervention, the Bank of Israel has purchased a total of $8.7 billion in foreign currency within the framework of the gas plan, including $3.5 billion during 2014 and $3.1 billion during 2015. During 2014, the Bank of Israel had unplanned purchases of $3.5 billion in foreign currency. During 2015, the Bank of Israel had unplanned purchases of $5.7 billion, bringing foreign currency purchases to $8.8 billion in 2015. In November 2015, the Bank of Israel projected that the overall effect of natural gas production on the balance of payments in 2016 would be $1.8 billion, and the Bank announced that it would purchase foreign currency during 2016 accordingly. The Bank of Israel intends to continue such purchases of foreign currency until Israel’s sovereign wealth fund becomes operational, which is anticipated in 2018 (subject to legislative review by the Knesset).
Israel is a party to free trade agreements with its major trading partners and it is one of the few nations that has signed free trade agreements with both the United States and the EU.
Fiscal Policy
The budget deficit amounted to 2.73% of GDP in 2014, below the budget deficit target of 3.0% of GDP for that year. Since 2009, the budget deficit has been on a declining path, with the exception of 2012. In 2009, the budget deficit amounted to 4.84%, due to a decrease in tax revenues resulting from the global financial crisis (the 2009 budget deficit target was set at 6%); 3.44% of GDP in 2010 (the 2010 budget deficit target was set at 5.5%); 3.06% in 2011 (the 2011 budget deficit target was set at 3.0%); 3.89% in 2012 (the 2012 budget deficit target was set at 2.0%); and 3.15% in 2013 (the 2013 budget deficit target was set at 4.7%). Pursuant to recent legislation, the budget deficit target is set at 2.9% of GDP for each of 2015 and 2016.
In accordance with the Government’s long-term fiscal policy, the Knesset revised the government expenditure ceiling set forth in the Expenditure Law (as defined in “Public Finance — Limits on Expenditure and Deficit Reduction,” below). The revision modifies the formula that will be used to calculate the annual budget in the coming years. Under the new formula, beginning with the 2015 budget, the expenditure ceiling will be calculated based on the average population growth rate in the three years prior to the submission of the Expenditure Law, plus the ratio of the medium-term debt target (50%) and current debt-to-GDP ratio. The new rule will be based on the three-year average population growth rate in order to ensure a consistent increase in expenditure per capita.
Inflation and Monetary Policy
The inflation rate over the last decade was near the middle of the Government’s target range (1% – 3%) and stood at approximately 2% on average. The changes in the CPI reflect a rise in the prices of commodities, housing, and agricultural products. Measured at year-end, the CPI rose by 2.7% in 2010, 2.2% in 2011, 1.6% in 2012 and 1.8% in 2013.
In 2014 the CPI decreased by 0.2%. Since June 2014, the inflation rate has been below the lower band of the Government’s target range, and since September 2014 the inflation rate has been negative. The CPI decreased by 0.9% during the twelve-month period ending November 30, 2015.
Because of the slowdown in the Israeli and global economies, the Bank of Israel lowered its key interest rate to 0.5% in the middle of 2009. As Israel’s economy recovered and continued to grow, the Bank of Israel began to gradually increase its key interest rate until it peaked at 3.25% in June 2011. The Bank of Israel then repeatedly reduced its key interest rate by 0.25%, beginning in September 2011. In May 2013, the Bank of Israel announced that it would further reduce the interest rate by 0.5%, to 1.25%. In March 2014, the Bank of Israel reduced its key interest rate to 0.75%. In August and September 2014, the Bank of Israel reduced its key interest rate twice, each time by 0.25%, to 0.25%. In March 2015, the Bank made another interest rate cut, lowering its key interest rate to 0.1%. The last interest rate cuts were made primarily because of the appreciation of the NIS. The real interest rate averaged -0.2% and -0.6% in 2013 and 2014, respectively, after two years of positive real interest rates of 0.2% and 0.1% in 2011 and 2012, respectively. In 2009 and 2010, the real interest rate was negative (-1.0% and -1.2%, respectively). As of the end of November 2015, the real interest rate, less inflation expectations, was -0.2%.
In recent years, Israel has been active in the global sovereign debt markets. In March 2009, Israel issued in the global markets an aggregate $1.5 billion principal amount of 5.125% bonds due 2019. In March 2010, Israel issued in the Euro market an aggregate €1.5 billion ($2.07 billion) principal amount of 4.625% bonds due 2020. In January 2012, Israel issued in the global markets an aggregate $1.5 billion principal amount of 4% bonds due 2022. In January 2013, Israel completed a dual-tranche issuance in the global markets, issuing an aggregate $1 billion principal amount of 3.15% bonds due 2023 and an aggregate $1 billion principal amount of 4.5% bonds due 2043. In January 2014, Israel issued in the Euro market an aggregate €1.5 billion ($ 2.05 billion) principal amount of 2.875% bonds due 2024.
The NIS/USD exchange rate saw an appreciation of the NIS between the second half of 2012 and the end of July 2014, averaging NIS 3.61 for 2013 and NIS 3.48 for the first half of 2014 (compared to NIS 3.86 in 2012). On July 31, 2012, December 31, 2012, July 31, 2013 and December 31, 2013, the NIS/USD exchange rate stood at NIS 3.997, NIS 3.733, NIS 3.566 and NIS 3.471, respectively. On July 24, 2014, the NIS/USD exchange rate stood at its lowest rate since July 2011, slightly above NIS 3.4. In view of this appreciation, the Bank of Israel made two interest rate cuts, as discussed above. In the second half of 2014, the NIS/USD exchange rate saw a depreciation of the NIS, as the rate increased from slightly above NIS 3.4 on July 24, 2014 to slightly below NIS 4.0 as of December 31, 2014. The depreciation trend of the NIS relative to the USD continued into the first months of 2015; in March and April 2015, the exchange rate was occasionally higher than NIS 4.0. Between May 2015 and July 2015, the exchange rate recorded an appreciation of NIS relative to the USD, standing at NIS 3.783 as of July 31, 2015. Since then, the NIS/USD exchange rate has been within a range of NIS 3.8–3.95. Since the beginning of 2015, the NIS recorded an appreciation relative to the Euro, mainly due to the Quantitative Easing in the “eurozone”.
In response to a sharp appreciation of the NIS that began in 2008 and continued until mid-2011, the Bank of Israel initiated a two-year policy of daily purchases of foreign currency. In August 2009, the Bank of Israel announced that it would terminate its daily purchasing of foreign currency but that it planned to continue purchasing such currency when it deems advisable. Between August 2011 and April 2013, the Bank of Israel did not make substantial foreign currency purchases. In May 2013, the Bank of Israel announced its plan to resume purchasing foreign currency to counteract the adverse effects of natural gas production from the Tamar reservoir, which began operating in late March 2013, on the balance of payments. Appreciation pressures on the NIS began following the commencement of production from the Tamar reservoir. The Bank of Israel’s intervention in the foreign exchange market, for the first time since 2011, is intended to offset the appreciation pressure on the NIS resulting from the increased domestic production of natural gas in order to avoid the phenomenon known as “Dutch disease”, which could negatively impact the Israeli economy. The Bank of Israel purchased $2.1 billion by the end of 2013, and another $3.5 billion in planned purchases during 2014. The Bank of Israel also purchased $3.5 billion in unplanned purchases during 2014.
In December 2014, the Bank of Israel projected that the overall effect of natural gas production on the balance of payments in 2015 would be $3.1 billion and announced that it would purchase foreign currency during 2015 accordingly. In November 2015, the Bank of Israel projected that the overall effect of natural gas production on the balance of payments in 2016 would be $1.8 billion and announced that it would purchase foreign currency during 2016 accordingly. Since the Bank of Israel’s intervention in the foreign exchange market, the Bank of Israel has purchased a total of $8.7 billion in foreign currency within the framework of the gas plan.
At the end of 2010 and 2011, official reserves stood at $70.9 billion and $74.9 billion, respectively. At the end of 2012 and 2013, official reserves stood at $75.9 billion and $81.8 billion, respectively. Due to the resumed purchases of foreign currency by the Bank of Israel, the official reserves increased to $86.1 billion as of the end of 2014. As of the end of 2015, the official reserves stood at $90.6 billion.
Labor Market
The rate of unemployment dropped to 5.9% in 2014, compared to 6.2% in 2013, reflecting a significant decrease compared to 6.9% in 2012 and 7.0% in 2011. From January to November 2015, the unemployment rate averaged 5.3%, which is very low by historical standards. The participation rate increased from 62.6% at the beginning of 2012 to 64.2% in the fourth quarter of 2014. Since the beginning of 2015, the participation rate has been stable at 64.1%, slightly lower than the 2014 rate. Despite the high participation rate and low unemployment rate, there are no major signs of pressure to increase wages, although the growth rate of wages has significantly accelerated since the beginning of 2015.
Capital Markets
The Tel-Aviv Stock Exchange (the “TASE”) is Israel’s sole stock exchange and the Tel-Aviv 100 (“TA-100”) and Tel-Aviv 25 (“TA-25”) are its main indices and primary indicators of the stock price performance of Israel’s public companies. The TA-100 and TA-25 measure the 100 and 25 companies, respectively, with the highest market capitalization listed on the TASE. The TASE is highly correlated with major stock markets in developed countries, and the global financial crisis and overall weakening in global growth starting in 2008 have affected Israel’s public companies. The TA-100 fell by 51.1% in 2008 but recovered in 2009 and 2010, rising by 88.8% and 14.9%, respectively. In 2011, the TA-100 fell by 20.1% and the TA-25 fell by 18%. The TASE partially recovered in 2012, with the TA-100 and TA-25 rising by 7.2% and 9.2%, respectively. This recovery continued into 2013 as the TA-100 and TA-25 increased by 15.1% and 12.1%, respectively. During 2014, the TA-100 and TA-25 increased by 6.7% and 10.2%, respectively.
In light of the 0.3% depreciation of the NIS against the USD during 2015, the TA-25 increased by 4.4% in USD terms and 4.0% in nominal terms over the course of the year. The value of the public portfolio of financial assets (a weighted average of the public’s holdings of financial assets and deposits, in Israel and abroad) increased by 8.8% and 6.8% during 2013 and 2014, respectively; According to the Bank of Israel estimate, the value of the public portfolio of financial assets shows a further increase of 4.7% in the first 10 months of 2015. In provident funds in 2013, there was a net inflow of assets under management of NIS 2,757 billion. In 2014, there was a net inflow of NIS 5,370 billion. For the first eleven months of 2015, there was an additional net inflow of 6,308 NIS billion.
The Bank of Israel, together with governmental authorities and regulators, monitors Israeli banks and financial institutions on an ongoing basis, supervising the banking system’s conditions and operations as a whole. In addition, the Bank of Israel cooperates with the Ministry of Finance and the Israel Securities Authority to achieve comprehensive regulation and supervision of Israel’s financial markets, to ensure coordination among the various entities in the financial sector and to set policies and measures that will be implemented and enforced with respect to such entities.
In 2011, the Bank of Israel and the Ministry of Finance took a number of steps to reduce short-term investments by foreign investors. These included, starting in January 2011, requiring banking corporations in Israel to meet a 10% reserve requirement for foreign exchange swap transactions and shekel-based forward contracts entered into by non-residents (which was subsequently canceled at the end of October 2014). In addition, the Ministry of Finance cancelled a tax exemption previously granted to foreign investors on capital gains from non-indexed zero-coupon securities of up to one-year maturity issued by the Bank of Israel (“Makam”) and short-term government bonds. To improve its ability to analyze transactions in the foreign exchange market and to increase transparency and investor confidence, the Bank of Israel imposed reporting obligations on Israeli residents and non-residents undertaking transactions in foreign exchange swaps and forwards exceeding $10 million per day, and non-residents undertaking transactions in Makam and short-term government bonds exceeding NIS 10 million per day.
Political Situation
The State of Israel was established in 1948. Israel is a parliamentary democracy, with governmental powers divided among separate legislative, executive and judicial branches. Israel has no formal written constitution but rather a number of basic laws that were granted special status, enabling judicial review by the Israeli Supreme Court. Israel’s constitutional jurisprudence is also grounded in judicial decisions and in the State’s Declaration of Independence. The President of Israel is the Head of State. The presidency is largely an apolitical, figurehead role, with the real executive power in the hands of the Prime Minister. The legislative power of the State resides in the Knesset, a unicameral parliament that consists of 120 members elected by universal suffrage under a system of proportional representation (see “State of Israel — Form of Government and Political Parties,” below).
Israel signed peace treaties with Egypt in 1979 and with Jordan in 1994, but past efforts to achieve peace with Syria, Lebanon and the Palestinians have yet to bear fruit. Relations between Israel and the Palestinian Authority continue to be based on existing agreements and on current efforts by the U.S. administration to resume peace talks.
In 2005, Israel redeployed out of the Gaza Strip (“Gaza”), dismantling all Israeli communities in Gaza and all its military bases there, as well as four Israeli settlements in the northern West Bank (see “State of Israel — International Relations,” below).
In the summer of 2006, Israel was engaged in a war with Hezbollah, a terror organization based in Lebanon. In June 2007, Hamas, a terror organization, assumed control over Gaza. In December 2008, in response to Hamas’s firing into Israel an increasing number of rockets from Gaza, Israel commenced Operation Cast Lead in Gaza with the goal of suppressing the rocket fire. The operation concluded in January 2009, contributing to relative calm from 2009 and into 2011. Operation Cast Lead did not materially affect the Israeli economy. From 2011 and into 2012, Hamas resumed and substantially increased its rocket attacks from Gaza, including for the first time using rockets that have the capability of reaching Tel Aviv and Jerusalem. In response, in November 2012, Israel launched Operation Pillar of Defense, a military campaign against terrorist targets in Gaza. Operation Pillar of Defense lasted eight days. In response to Hamas firing rockets from Gaza into Israel in the summer of 2014, in July 2014, Israel took defensive military action and commenced Operation Protective Edge with the goal of suppressing the rocket fire, some of which reached Israel cities and towns almost 100 kilometers away from Gaza. The operation ended in August 2014.
Having been at a standstill since 2009 (despite a brief round of talks beginning in September 2010), Israeli-Palestinian peace negotiations were again initiated, under the auspices of U.S. Secretary of State John Kerry, in July 2013. Progress was made but, before the last phase of negotiations of a prisoner release by Israel, for which Government approval was imminent, the Palestinian Authority breached its commitments and submitted requests to accede to fifteen international conventions. While the talks were suspended, the Palestinians announced a unity pact between Fatah and Hamas, which would lead to a so-called national consensus government. Incorporating Hamas into the Palestinian government, under one guise or another, is unacceptable to Israel as long as Hamas rejects the three benchmarks of the International Quartet (namely, recognizing Israel, accepting existing Israeli-Palestinian agreements, and renouncing violence). Although Israel has expressed its willingness to negotiate without preconditions with Palestinian partners who accept the Quartet’s conditions, Hamas still refuses to do so, leaving negotiations at an impasse. However, improvements have been made in economic and security cooperation with the Palestinian Authority.
In September 2011, the Palestinian Authority filed an application for membership with the United Nations. In November 2012, the General Assembly upgraded the Palestinian Authority’s status in the United Nations from a “non-member observer entity” to a “non-member observer state.”
Since January 2011, there has been political instability and civil unrest, in numerous Middle East and North African countries, including Bahrain, Libya, Egypt, Tunisia, Yemen and Syria. This unrest resulted in the removal of long-standing leadership in several of the aforementioned countries and created turbulent political situations in others. As Israel is situated in this region, it closely monitors these events, aiming to protect its economic, political and security interests. The delicate relations between Israel and its neighbors could become even more fragile with the domestic turmoil and change in regimes. However, such instances of instability in the Middle East and North Africa region have not materially affected Israel’s financial or political situation, and Israel believes that countries that have signed peace agreements with Israel remain committed to them, regardless of internal political developments. Nevertheless, there can be no assurance that such instability in the region will not escalate in the future, such instability will not spread to additional countries in the region, current or new governments in the region will be successful in maintaining domestic order and stability, or Israel’s economic or political situation will not be affected thereby. This uncertainty is highlighted by recent fighting in Syria and Iraq, where an Islamist militia group known as ISIS (Islamist State in Iraq and Syria) is challenging the territorial boundaries of both states.
Since the signing of the Camp David Accords in 1979, peace with Egypt has been important to Israel’s national security. Following the ousting of Egyptian President Hosni Mubarak, the relationship between Egypt and Israel has been strained, but the election of President Al-Sisi has been accompanied by reassuring statements regarding common interests. As of January 2016, Israel did not perceive a material change in the strategic stance of Egypt, and the peace treaty between the two states remained in force. Moreover, As of January 2016, Israel monitors very closely the situation in Syria, in which many dangerous forces operate. The direct threat to Israel from the Syrian military has clearly diminished, also due to the dismantlement and removal of Syria’s chemical weapons. Nevertheless, Israel remains vigilant regarding the security challenges posed by its shared border with Syria, possible transfers of strategic weapons (including chemical and biological weapons), and the possibility that the ongoing civil war will devolve into a state of anarchy.
Fundamentalist regimes such as Iran present a deep concern for the international community and especially for states in the region. Since 2011, the prospect of a nuclear Iran has been at the center of international geopolitical discourse. The comprehensive agreement between the P5+1 group and Iran that was reached on July 2015 (Joint Comprehensive Plan of Action) conditions international economic sanctions relief, mainly United States and EU sanctions, on Iranian nuclear capabilities reduction and supervision by the International Atomic Energy Agency. Assessments forecast that the sanction relief day (“Implementation Day”) will be at the beginning of 2016. Despite the economic sanctions relief, the primary United States sanctions, and all other non-economic sanctions will remain in place. There is evidence that Iran continues to violate United Nations Security Council resolutions on those matters, so far with limited success of deterrence by the international community.
Privatization
Historically, the Government has been involved in nearly all sectors of the Israeli economy. In the past several decades, privatization has been an essential element of the broader market reforms initiated by the Government aiming to promote the growth of the private sector, mainly by enhancing competition. Israel has made substantial progress in recent years, resulting in the privatization of many enterprises owned by the State and the reduction of State subsidization of business enterprises. In total, between 1986 and 2014, 98 Government Companies (as defined in “Role of the State in the Economy,” below) became partially or fully-private. The proceeds stemming from these privatizations totaled $14.2 billion. In 2010, privatization proceeds amounted to NIS 4.5 billion (approximately $1.2 billion), partly as a result of the privatization of the State’s interest in two of the five major banks in Israel — Israel’s entire remaining stake in Israel Discount Bank Ltd. and 5% of the outstanding equity securities of Bank Leumi Le-Israel Ltd. Currently, the Government holds approximately 6.03% of Bank Leumi’s outstanding equity securities, and on June 9, 2014, the Finance Committee of the Knesset approved the Government’s request to sell the remaining stake over the coming year. The Government did not exercise its right to sell its stake in Bank Leumi, and the Knesset’s approval expired on June 9, 2015. In addition, the Government plans to continue with the process of privatizing its interests in financial institutions, as well as State-owned land, seaports, Postal Authority, energy and transportation utilities and parts of the defense industry (see “The Economy — Role of the State in the Economy,” below).
Loan Guarantee Program
In 1992, the United States approved up to $10 billion of loan guarantees during U.S. fiscal years 1993 through 1998 to help Israel absorb the influx of immigrants over this period. Israel completed its financings under this program in January 1998. In April 2003, the United States approved up to $9 billion in additional loan guarantees for Israel to be issued during U.S. government fiscal years 2003 through 2005, with an option to extend the program by an additional year. In 2005, the United States approved Israel’s request to extend the $9 billion program for two more years; in 2006, this program was extended again through U.S. fiscal year 2011 (with an option to carry forward unused guarantee amounts for an additional year); and in 2012, the program was extended again through 2016. On October 24, 2012, the United States and Israel entered into an agreement establishing a new framework for administering the extended program. A further extension of the program was signed into law by President Obama on December 18, 2015. The new law extends the program until September 30, 2019 (with an option to carry forward unused guarantee amounts for an additional year) and allows the United States to provide access to up to $3.8 billion in future loan guarantees as part of the $9 billion commitment made in 2003.
The amount of guarantees that may be issued to Israel under the loan guarantee program may be reduced by an amount equal to the amount extended or estimated to have been extended by Israel for activities that the President of the United States determines are inconsistent with the objectives and understandings reached between the United States and Israel regarding the implementation of the loan guarantee program. Under the program, the United States issues guarantees with respect to all payments of principal and interest on certain bonds issued by Israel. The proceeds of the guaranteed loans may be used to refinance existing debt. Under the $9 billion loan guarantee program, between September 2003 and November 2004 Israel issued guaranteed notes totaling $4.1 billion face value. Israel has not issued any notes under the loan guarantee program since November 2004, and up to $3.8 billion of U.S. loan guarantees (subject to the reductions described above) remains available.
Table No. 2
Selected Economic Indicators
(In Billions of NIS Unless Otherwise Noted)
| 2010 | 2011 | 2012 | 2013 | 2014 | ||||||||||||||||
| Main Indicators | ||||||||||||||||||||
| GDP (at constant prices) | 876.1 | 920.2 | 946.7 | 977.4 | 1002.4 | |||||||||||||||
| Real GDP growth | 5.5 | % | 5.0 | % | 2.9 | % | 3.3 | % | 2.6 | % | ||||||||||
| GDP per capita (at constant 2010 prices) | 114,965 | 118,536 | 119,726 | 121,335 | 122,070 | |||||||||||||||
| GDP per capita, percentage change | 3.6 | % | 3.1 | % | 1.0 | % | 1.3 | % | 0.6 | % | ||||||||||
| Inflation (change in CPI – annual average) | 2.7 | % | 3.5 | % | 1.7 | % | 1.5 | % | 0.5 | % | ||||||||||
| Industrial production | 9.5 | % | 2.1 | % | 4.0 | % | 0.5 | % | 1.2 | % | ||||||||||
| Business sector product (at constant 2010 prices) | 653.4 | 691.0 | 709.3 | 733.6 | 750.4 | |||||||||||||||
| Permanent average population (thousands) | 7,621 | 7,764 | 7,906 | 8,056 | 8,212 | |||||||||||||||
| Unemployment rate(1) | 8.0 | % | 7.0 | % | 6.9 | % | 6.2 | % | 5.9 | % | ||||||||||
| Participation rate | 62.6 | % | 62.6 | % | 63.6 | % | 63.7 | % | 64.2 | % | ||||||||||
| Foreign direct investment (net inflows, in billions of dollars) | 6.3 | 8.7 | 8.5 | 12.4 | 6.7 | |||||||||||||||
| Trade Data | ||||||||||||||||||||
| FX reserves, nominal USD | 70.9 | 74.9 | 75.9 | 81.8 | 86.1 | |||||||||||||||
| Exports of goods and services (NIS, at constant 2010 prices) | 306.8 | 334.2 | 337.3 | 337.6 | 342.8 | |||||||||||||||
| FX reserves, as a % of gross public external debt | 176.6 | % | 206.9 | % | 240.1 | % | 276.0 | % | 285.8 | % | ||||||||||
| Imports (F.O.B) of goods and services (NIS, at constant 2010 prices) | 287.3 | 317.2 | 324.4 | 326.1 | 336.1 | |||||||||||||||
| FX reserves, as of months of import | 11.05 | 9.69 | 9.86 | 10.68 | 11.03 | |||||||||||||||
| CA balance as % of GDP | 3.5 | % | 2.6 | % | 1.6 | % | 2.9 | % | 3.7 | % | ||||||||||
| Government Debt(2) | ||||||||||||||||||||
| Total gross government debt (at end-of-year current prices)(3) | 608.2 | 633.0 | 666.8 | 696.3 | 715.8 | |||||||||||||||
| General Gov Expenditures as % of GDP | 40.4 | % | 39.6 | % | 40.1 | % | 40.4 | % | 40.1 | % | ||||||||||
| Total gross government debt as percentage of GDP | 69.4 | % | 67.6 | % | 66.6 | % | 65.9 | % | 65.4 | % | ||||||||||
| Deficit as % of GDP | 3.4 | % | 3.1 | % | 3.9 | % | 3.1 | % | 2.7 | % | ||||||||||
| External Debt | ||||||||||||||||||||
| net external creditor position as % of GDP | 24.0 | % | 23.2 | % | 26.0 | % | 28.0 | % | 32.5 | % | ||||||||||
| External debt liabilities (in millions of dollars) | 111,860 | 109,297 | 102,029 | 101,259 | 96,164 | |||||||||||||||
| Net external debt (in millions of dollars) | -56,347 | -60,840 | -67,465 | -81,812 | -99,535 | |||||||||||||||
| Revenues and Expenditures (net) | ||||||||||||||||||||
| Revenues and grants | 217.63 | 233.13 | 238.69 | 260.63 | 273.68 | |||||||||||||||
| Expenditures | 325.80 | 347.73 | 376.97 | 389.47 | 402.61 | |||||||||||||||
| Expenditures other than capital expenditures | 233.20 | 245.05 | 262.76 | 278.62 | 287.35 | |||||||||||||||
| Development expenditures (including repayments of debt) | 92.36 | 102.51 | 114 | 110.83 | 115.22 | |||||||||||||||
| Repayments of debt | 79.55 | 88.16 | 97.95 | 94.42 | 99.09 | |||||||||||||||
| (1) | Reflects changes in the Central Bureau of Statistics’ labor survey methodology, resulting in higher values in the unemployment rate line items. |
| (2) | Government debt excluding local authorities’ debt. |
| (3) | Risk Management Dept., Debt Unit, Ministry of Finance. |
| Sources: | Central Bureau of Statistics, Bank of Israel and Ministry of Finance. |
| This ‘18-K/A’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 9/30/19 | ||||
| Filed on: | 1/7/16 | |||
| 12/31/15 | FWP | |||
| 12/18/15 | ||||
| 11/30/15 | FWP | |||
| 11/19/15 | ||||
| 7/31/15 | FWP | |||
| 6/30/15 | 18-K, FWP | |||
| 6/9/15 | ||||
| For Period End: | 12/31/14 | 18-K, FWP | ||
| 7/24/14 | ||||
| 6/9/14 | ||||
| 12/31/13 | 18-K, 18-K/A, FWP | |||
| 7/31/13 | FWP | |||
| 3/30/13 | ||||
| 12/31/12 | 18-K, 424B2, FWP | |||
| 10/24/12 | ||||
| 7/31/12 | 424B3, FWP | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 3/12/24 Israel, State Of 18-K/A 3/12/24 4:250K Toppan Merrill/FA 1/17/23 Israel, State Of 18-K/A 12/31/21 4:381K Toppan Merrill/FA |