Israel Faces Economic Weakness

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Israel responded promptly to the global crisis despite political limitations, but economic stimulus measures need to be contained to avert a ballooning budget deficit. IMF cautioned in an initial country report released today.

Policy-makers have responded promptly, political constraints notwithstanding while much has been done, planning for contingencies needs to proceed further and urgently written in report. If policy credibility, effective coordination, and clarity of objectives remain the standard which further initiatives have to meet, Israel will pass through this turbulence successfully.

The IMF delegation that arrived in Israel at the beginning of the month published the initial report at the conclusion of the mission, in preparation for its annual country report compiled in Washington, which has an important bearing on the rating of Israel's economy.

In their final meeting with Governor of central bank of Israel and Finance Minister Ronnie BarOn, the head of the IMF delegation Peter Doyle said that in comparison with other countries around the world, Israel is in a better position to cope with the global crisis. The main message Israel needs to send to the markets is an assurance that the government will continue its policy of bringing down the country's debt-to-GDP ratio, which in turn will help overcome other challenges, Doyle said.

Successful sustained tight budget control by the Finance Ministry, and the associated reduction in public debt ratios to below 80 percent of GDP, has secured a considerable degree of fiscal credibility. Now is an appropriate time to deploy this credibility to cushion the domestic economy from some of the effects of the weak external environment," the report recommends. "But the likely moderate extent of the economic slowdown in 2009 and the still high debt ratio counsels against going much further than that, since aggregate tax collection ratios will not return to levels seen in recent years, even once global economic conditions normalize.

The report cautioned that Israel's economy will be hurt by the global crisis, and outlined the risks going into 2009. The IMF report estimates that the draft 2009 state budget and the necessary policy initiatives are likely to deliver a consolidated general government budget deficit in excess of 4% of GDP.

Feroz Ahmed Bawany goal is to increase my knowledge and to understand the only civilized creations of Almighty Lord are HUMAN. He is a regular contributer to TRCB.com.

 

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