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Israel
>> Regional Overview >> Israel Overview
Summary Tables
Program Summary
Previous Years' Activities
2001, 2000, 1999, 1998, 1997Last updated: 53
Introduction
USAID assistance to the Government of Israel (GOI) supports the U.S. objective of achieving peace in the Middle East. Toward that end, the U.S. helped broker the Camp David aAccords signed by Israel and Egypt in 1978. In addition, Israel signed the Declaration of Principles with the Palestinians Authority on September 13, 1993 and the Interim Agreement on September 28, 1995. Israel signed the Peace Treaty with the Jordanans on October 17, 1994, and the Wye River Memorandum took effect on October 23, 1998.
Israel's economy continues to become increasingly sophisticated and technologically advanced, yet the political instability and ongoing conflict hinders the extent of possible economic and technological progress. The economy has responded favorably in recent years to the restructuring imposed after the crises and hyper-inflation of the mid-1980s. The real gross domestic product (GDP) growth rate was 6.0% in 2000, up from 2.3% in 1999. As a result, the budget deficit in 2000 was only 0.6% of GDP. After two years of decline, the GDP per capita increased by 3.4%. GDP per capital surpassed $17,500 by the end of 2000, close to the level of many developed countries. The literacy rate is 95%, and life expectancy is 78 years. The infant mortality rate is eight8 per 1,000 births. The economy boomed in the first three quarters of 2000, but contracted in the last quarter, primarily dueowing to the security situationsome . Small high-tech start-ups drove growth, despite the relatively small size of this sectorsegmen. Unemployment has stayed high at 8.8%-only marginally lower than the 1999 rate of 8.9%-due to the rapid rise in the labor force population, which has outpaced the increase in job creation. Real wages rose sharply in the high-tech sector, however, with the supply of skilled workers unable to keep up with demand. Israel registered zero inflation by the end of 2000. The trade deficit declined by 11.5% in 2000, thanks largely to a 58% rise in high-tech export sales. Imports grew by 15% as energy costs increased. The current account deficit for the first nine months showed an improvement. Foreign direct investment surged, but capital outflows also rose.
Development Challenge
Political instability and uncertainty define much of Israel's development challenge at this time, and will impact the nature and pace of economic reform in Israel. This is particularly true in light of the upsurge in Israeli-Palestinian violence since September 2000. The new Israeli leadership is clarifying its economic policy framework. While overall growth was strong in 2000 and particularly during the first three-quarters of the year, the ongoing violence led to an economic downturn toward the end of the year. The fiscal deficit rose during the last two months of the year due to a surge in military expenditures and falling tax revenues. The GDP growth rate slowed during the last quarter. The main branches of the economy hurt by the geopolitical developments in the last quarter were tourism, construction and agriculture. In addition, there was a sharp decline in exports to the West Bank and Gaza.
For 2001, the current year, a further downturn in the economy is expected, and the GDP growth rate will likely slow. The expansion of fiscal spending, coupled with weaker revenue, will lead to a rise in the fiscal deficit. The Bank of Israel has warned of developments that could destabilize the economy, such as further deterioration of the political situation, or a substantial rise in volatility on world financial markets.
Global growth peaked in mid-2000. With the downturn in the U.S. and the European Union economies, Israeli export growth could slow. In addition, new leadership is at the helm in both the U.S. and Israel. Relations with more moderate Arab governments, built up slowly since the Oslo process began in 1993, have deteriorated as a result of recent events. It will take some time, using unambiguous demonstrations of goodwill and progress toward peace, to recover ground.
To strengthen the economy, more work is needed to liberalize and restructure the large public sector. The Government of Israel needs to reduce its spending, improve the tax and public wage structures, increase the pace of privatization, reform the labor markets, facilitate private-sector development and investment, expand governmental infrastructure investment, reduce the balance of payments and sustain export growth. But political and governance obstacles remain. As economic progress and peace serve one another, explicit progress on achieving peace will be needed as well to allow Israel to reach its full economic and development potential.
Other Donors
The United States remains the largest bilateral donor.
FY 2002 Program
In FY 2002, the cash transfer funding level is expected to be $720 million. The Cash Transfer Program supports policy reform for structural adjustments in Israel that can lead to economic and political stability, domestically and the larger Middle East region. It The Cash Transfer Program is aimed at strengthening Israel's domestic economy to enable the Government of Israel (GOI) to more easily balance requirements to pay foreign debts while financing other annual government expenditures, therefore easing the . Thus the economic pressure on the Government of Israel is eased. The U.S. Government's (USG)economic and other programs in Israel are aimed at enhancing the Government of Israel's ability to take the steps necessary to reach agreements with its neighbors on a host of peace related issues.
In addition to the bilateral program, a USAID Bureau for Humanitarian Response program demonstrates U.S. educational and medical technologies and practices through three different activities in Israel.
Activity Data Sheets
- 271-001 Support Policy Reform for Financial Stability and Structural Adjustments Needed for Rapid Sustainable Growth
Country Background Information Resources
CIA Factbook
Library of CongressNational Geographic Country Maps
State Dept. Country Information
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Last Updated on: May 29, 2002 |
