International Monetary Fund logo 370.
(photo credit: REUTERS/Bogdan Cristel)
Israel should take additional measures beyond those proposed by the Trajtenberg
Report to increase Arab and haredi labor-force participation, the International
Monetary Fund said Monday.
The IMF’s recommendation was contained in its
annual report on Israel, which it released Monday, about two months after the
visit here of a four-person delegation led by European division chief Peter
The report proposed:
• expanding the provision of basic child care
and transportation in Arab areas
• equalizing the quality and quantity of
education provision in Arab communities with that elsewhere
alternatives to the Tal Law so that more haredi men are able to serve in the
military or civic activity
• removing impediments to business establishment in
both communities by increasing infrastructure investment
enforcement of labor regulations.
It acknowledged the government’s
encouragement of economic activity in Arab communities and the Trajtenberg
Committee’s support for reducing the marginal tax rate on employment and
ensuring equal opportunities in the labor market. But it said given the
anticipated rapid change in Israel’s demographic structure, reform initiatives
must be expanded, accelerated and deepened.
Looking at the overall
picture, the report said Israel emerged from the 2008-09 global financial crisis
with strong economic growth, a resilient banking system and low
It predicted Israel would not experience a severe downturn
in the near term. Israel’s financial system appears robust in the context
of a global and local slowdown, the report said.
expenditure would be a good way to tackle low participation among minority
groups and raise investment, it said. It proposed that to reduce inequality, the
social-welfare system could be made more targeted and increasingly conditional on
employment without significantly increasing the amount of
Public expenditure in Israel represented 44.3 percent of GDP in
2008, similar to the OECD average of 43.7%, the report said. But the magnitude
of defense spending means Israel’s civilian expenditure is among the lowest in
the OECD, it said, adding that the 7.3% of GDP Israel spent on defense in 2008
was more than four times the OECD average and well above the 4.6% of the second-
biggest spender, the United States.
The report called into question the
effectiveness of education spending in particular, pointing out that Israel
ranks among the worst performers in the OECD’s Program for International Student
Assessment. Education expenditure in Israel is similar to other developed
countries that achieve much higher results, it said, suggesting that the poor
results partly might be because class sizes here are significantly higher than
in those countries.
The report welcomed the authorities’ commitment to
maintain the total spending limits in the 2012 budget. But it warned that
unfunded fiscal commitments of about 0.75% of GDP made in response to last
year’s social protests would have to be resolved within the budget framework.
Pointing out that the 2012 deficit is projected to overshoot the 2% ceiling by
almost 1.5 percentage points, it said fiscal policy must remain focused on debt
reduction in the near term by adhering to spending limits set by Israeli
Knesset members received special praise for passing the new Bank of
Israel Law in 2010, which the report said aligns the Bank of Israel’s de jure
with that of the world’s most modern inflation- targeting central banks. It said
the new law correctly identifies price stability as the primary objective of
policy, grants the bank a considerable degree of independence, strengthens its
management and makes it more accountable.
The Washington, DC-based IMF is
an organization of 187 states whose objectives are to promote international
economic cooperation, trade, employment and exchange-rate stability. Bank
of Israel Governor Stanley Fischer was nominated for IMF managing director last
year but was disqualified because of his age.