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Foreign investment in 2005 should top $6 billion with the economy growing by just over 5%, Finance Minister Ehud Olmert said Tuesday, as he forecast 2006 growth above initial estimates of 3.9%.
"We think that growth will continue in the coming year. I cannot promise it will be at this (year's) rate of 5% but I think that it will be above the initial expectations we had when the 2006 budget was prepared and presented to the government," he said at a conference for employees of the Treasury's budget department.
Meanwhile, he believes the 2005 deficit will be about 2% of gross domestic product - well within the government's target of 3%.
Olmert based figures for foreign investment on data for the first 11 months of the year and said they don't take into account the NIS 1.35b. purchase of Bank Leumi asset management unit Psagot Ofek by New York-based York Capital Management. Bank of Israel figures show that foreign investment was $6.08b. in 2004 and $4.02b in the first 10 months of this year.
Foreign investment gains have been fueled partly by the government's privatization policies, which resulted in Leumi and Bezeq being sold to international companies for billions of shekels. In addition, overseas players have invested heavily in the Tel Aviv Stock Exchange, sending stocks to record highs. They have poured more than $1b. into venture capital and hi-tech companies this year.
Olmert said another reason for the high level of foreign investment was the government's fiscal discipline, which led to the lower-than-expected budget deficit, which Olmert promised to maintain.
"The deficit figure is a clear declaration of the depth of our determination to continue these fiscal policies next year also," he said.
In addition, he pledged that the government would continue to cut the national debt, which has fallen this year but hovers around 100% of GDP and costs $10b.-$12b. a year in repayments.
"The national debt is way above levels that are acceptable in categories that we want to be included in, such as OECD (Organization of Economic Co-operation and Development) categories. We need to make a lot of effort for a process that takes many years, but the trend is one that is falling and will continue to do so," said Olmert.
Although the government is looking to cut debt, it may find it easier to borrow money at more attractive rates after the March general elections.
"Israel's credit rating on international markets could improve a few months after the elections, depending on what the government does and what economic decisions it makes," Bank of Israel Governor Stanley Fischer said on the sidelines of the conference.
Ratings agencies Standard & Poor's, and Fitch Ratings grade Israel at "A-," while Moody's Investors Service rates Israel at "A2." The ratings they give affect the willingness of financial institutions to lend money to the government.
Because of the Treasury's fiscal discipline, Olmert said he won't reverse the budget cuts made over recent years. "The question isn't whether there was a need to cut the budget. There is no argument about this. We have no intention of returning to previous policies."
However, he once again reiterated the government's commitment to solving the problems of poverty, saying it was one that concerned many potential investors.
"The subject that troubles them the most is Israel's social distress," he said, but but admitted that "we don't have a financial solution."
He said this despite having presented earlier this week a seven-year NIS 14b. program to help alleviate poverty. Prime Minister Ariel Sharon has approved the program and instructed Olmert and Fischer to examine ways of implementing a negative income tax program.
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