Israel's economy emerges from lengthy recession

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Page 124

After a prolonged recession, Israel recorded strong economic growth in 2004, helped by prudent policies, a favorable external environment, and a better security situation, the IMF said in its annual economic review. The recovery is expected to continue in 2005, although at a slightly slower pace. The IMF Executive Board commended the authorities for improving policies and encouraged them to further strengthen the fiscal position, reduce the high level of public debt, and implement key structural reforms.

The government is committed to maintain future deficits below 3 percent of GDP and limit public expenditure growth. To that end, the Board urged the authorities to adopt a multi-year budgetary framework and a detailed spending plan to enhance credibility, ease political pressures, and reflect long-term priorities.

During 2004, monetary policy was loosened as inflationary pressures continued to ease. Subdued inflation amid sheqel appreciation against the U.S. dollar during the second half of the year prompted the Bank of Israel gradually to reduce interest rates. The Board commended the central bank for its policy course and encouraged the authorities to...