RESTR!CTED

Report No. EMA-47a

T*s report is for official use only by the Bank Group and specifically authorized organizationsor persons. It may not be published, quoted or cited without Bank Group authorization. TheBank Group does nDot accept responsibility for the accuracy or completeness of the report.

TXTrRPMATILTC' BAT. flANT( FOR R1TCC)NqTRTjCTTON AND) DTVP.T.nPMFNT

LTTERN'TATIONAT DEVEPTOPMRNT A SSOC!ATTON

CURRENT ECONOMIC POSITION

AND PROSPECTS

OF

ISRAEL

June 16, 1972

Europe, Middle East andNorth Africa Departmernt

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CURRENCY EQUIVALENTS

Since Auguist 21, 1971

1 Israel pound = .238 U.S. dollar.

1 U.S. dollar = 4.2 Israel pounds

From November 19, 1967 through August 20, 1971

1 Israel pound = .265 U.S. dollar

1 U.S. dollar - 3.5 Israel pounds

TABLE OF CONTENTS

Page No.

BASIC DATA

SUMMARY AND CONCLUSIONS ............. ............... i

I. INTRODUCTION ....... ............................. i

II. RECENT ECONOMIC GROWTH ..... .................... 1

III. CONSTRAINTS ........................................ 4

Mineral and Water Resources . ................... 4Labor Force ................................... 5National Savings and Foreign Capital ... ....... 6

IV. ECONOMIC POLICIES .................................. 7

Foreign Trade Policies ........................ 7Fiscal. Policies ............................... 9Price and Monetary Policies .... ................ 11

V. ECONOMIC PROSPECTS ................................. 13

The Objectives ................................ 13A Set of Assumptions .......................... 15The External Debt ............................. 18

ANNEX: Develcpment of Major SectorsAgr4cul-ure Al

.L' L LS.L gIm

Industry A4Other Sectors A8

s report^ was prp-re ,A, a m-s-o tha etmT

lAA 4 L _. _ _ _ , A Li __ L ._LL AL VAL_ J.AJ A._ A A 1A JAAT I. _ 1%.__ A

1971 tc, November 10, 1971. The mission was composed of: Robert Maubouche(Cief), Jo. T--n de Leede fGer.era IcroXs) TNure ------ Ir-.dustr-ial% '..AL.L1LJ j , ULAM IL U U %'~Lv La k£,LLDLWUA.0LU U %1&U&&~UL;C £J=WCY~ %LLAUU5L .L..

Specialist), Alvin Egbert (Agricultural Economist), Orville Grimes (HumanLWsourcUesS, ZXv.UicI. raC:L, HarouniL L er L%ftschid Unad ELQoLI Senuer (RegiouaL Deve.L

opment).

BASIC DATA

Area: 8,ooo square miles

FoiiliUion: 2.96 million (average 1970)WnTt! of growth (1961-1970): 3.4

(1970) s 2.8

Gross National Product, 1971 (Est.): IL 21,094 millionPer Capita: U$ 1Milt /A

Awer Age r inul r f%w +h Ral+1 91 QA7 1 Q67-1 QAC9 1 Q70

1.6 13.5 7.0

Sectoral Distribution (% of GDP) 1968-1970

Agriculture 7Ua,,a_+,^^i .- t._ -4 M44_g Ot'

Construction 10tJL V %7. JJ"IL'IiUA V

Others 38

Use of Resources (in percent) 1965 1970

Private Consumption 50 42ruu±Lc ConsurtumpOn.-L. 614

Gross Investment 21 17Exports of Goods and Services 14 17

Total Uses 100 100Gross Domestic Product (o

Imports of Goods and Services 24 31

Monoy, Credit End 1970 Rate of Change (%)-(im millions) 1969 1970 June 70/71

Money Supply 3,386 2.5 14.0 24.6Time and Sav:ings Deposits 6,274 25.1 23.5 27.5Bank Credit to Public 5,622 21.7 23.5 25.4Bank Credit to Government 3,852 89.5 33.8 59.9Net Foreign Assets 3,477 -44.0 -9.9 -.7.3

Consuner Prices 1963/66 1967/69 1970 1971

Annual Average Rise 6.8 2.1 6.1 11.2

/1 At exchange rate of US $1 - IL 4.20

Central Government Budget (IL million) 1969/70 1970/71 1971/72(revised budget)

Current Revenue 4,979 6,346 9,075Current Expenditure 6,432 8,698 li,555

Current Deficit 1 453 2,352 2 480Capital Expenditure fftt 1,49 2,1=7

Overall Deficit 3,092 3,811 4 627Domestic Financing (net) 2,SC8 2,031 9Foreign Financing (net) 654 1,780 2,334

Balance of Payments ($ million) 1968 1969 1970

Commodity Exports (f.o.b.) 649 746 792Commodity Imports (c.i.f.) -1.071 -1-272 -1,387Net Invisibles - 226 - 33 -621Deficit on Current Account - 648 - 869 -1.219Unilateral Transfers 435 L59 636

Concentration of Commodity Exports 1965 1970

Diamonds 33% 26 0Citrus 18 1i0

RYternnqI Medium and Lona-term Dsbt 1969 1970 Jne 19c171

Total1 Debt nlit,utqnndjnv($ million) ,995 2J,38 2,924Ratio of Debt Service to

Foreign Exchange Rarnings (1071) 16.3

BPnJk Gr'rnim PnRitioin (n million) 31 Mqrth 1Q72

Total loans (less can)cellations) 18) Repayments 34.9Total lo-ans cuitstai.nr.noi *

of which: disbursed and held by Bank 88.7und i QhiiY-60.8

DIFM Position '-41 In". 1972

,.4"V ,,I 4

Drawings outstanding 70.6

Reserves ($ million)______ 1fYco ~ ~ ~968 ly69 1970

Gross Reserves 916 729 839Net Reserves 685 403 336of rhich: SDR s _ _

SUMMARY AND CONCLUSIONS

i. Israel has always made great efforts to encourage immigration,maintai.n security, ar.!i stimilateo etnonit-c arowt-h ResldAs rnnr4inued grow!:h,increased attention has been given in recent years to two other economicobjectives: export prorno4tnn and fu.l 1 A- lo-nt. * -r4n1-sjderab1l sucss_has been obtainred in pursuing these objectives, and the Government nown

4ais at a anna. 4...l * r.mnt of soc

4al cor.diA4 -o. t has beer., however,

increasingly difficult to contain domestic price rises and to finance therapldAly, growinrg LdefAicit of the balan-ce of pay-UMents.0 'U-wr thari e-r i;rap.LLy ~UWJ.I~ ~ J~. 1A~ UJ.~AL.~ L ~.ly&iA~LLL. KLUJL~ L-LILAU =VUL, .L. IWLY

be challenging for Israel to reconcile these often conflicting goals.

ii. In 1970, gross domestic product rose by more than 7 percent inreal terms under conditions of full employment. Total demand, however, in-creased by about 10 percent requiring a growth in imports of about 18 per--cent, which continued the trend begun in 1967. I ainly as a result of thegrowth in defense outlays, which now account for more than 25 percent ofGNP, publiC c:onsumption rose again sharply. Gross capitai formation ac-counted for 24 percent of GDP, a slightly lower percentage than in theearly 1960's. Exports increased in 19;0 by about 10 percent while rhegrowth in private consumption was limited to 3 percent in real terms. Theadjustment between demand and supply took place through an overall priceincrease of 6.6 percent.

iii. The inflationary pressures that built up in 1970 appear to havebeen stronger in 1971. owing in part to the inflow of labor from the occit-pied territories, domestic output probably grew by about 8 percent in realterms. The boom in private investment, especially in housing, continued,and the investment rate slightly increased. While government measures andprice increases were likely to keep the rise in private consumption below 5percent, exports probably expanded by close to 20 percent, much above theaverage of the second half of the 19609s.

iv. In the last few years Israel's foreign trade has undergone a shiLftof emphasis that is likely to prevail through the 1970's. During a longperiod, rapid export growth was accompanied by Government's concerted effortsand general policy to substitute for imports. In the late 1960's it becarleclear that room for further expansion in the small domestic market wasrather limited, and future growth would have to be based to a greaterextent on external markets. The Government is consequently giving priorityto export promotion, and its devaluation of the Israel pound in August 1971must be seen in this perspective. It feels that success in the export drivewould help to reduce external deficits, and will lend support to import li.ber-alization. To achieve its export objectives, the Government has taken megt-sures to release real resources from domestic uses. As it was difficult tocurb public spending because of the heavy burden of defense commitments, re-straints were placed on the growth of private consumption, mainly through tax

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increases. The resulting growth in public revenutes was not sufficient, how-ever, to prevent a rapid increase in thie current public sector deficit. Pub-lic investment grew very slowly until 1970, reflecting in part the severe fi-nancial constraint on the public sector. A change in policy took place in1970; public capital expenditure has Increased since then at a rate above 20percent, mainly in response to social pressures,

v. The Government' s growth target is an average annual growth in GDPof 8 percent for the 1971-1975 period brought about by an increase in ern-plovment of 3.5 percent annuallv and an investment rate of about 23 nercent,Under a number of assumptions, in particular that government services includ--ing defense, will rise by about 5.5 percent. such a growth rate in GDP isclose to being attainable. More difficult but still not impossible toachieve will be the proiected substantial reduction in the resource s>an.Fven if exports of goods and services grow at a rate close to the predicted15 nercent ner year- it will be a considerable challenge for Israel to lInitthe growth of private consumptior. per capita to only 2.1 percent per yearwhen itR average annual arowth during the 1960's was above 5 nereent-

vI. Imnrovements ln the resource gap vill also imnlv drastic chana'esin the pattern of Israel's trade in goods and non-factor services. Hereagaini an tmnortant hyvothesl is that direct imports for defense woumldstay at their 1971 level of $650 million. This amount is of ouch a magni--t comnnred witeh a resonirtCe gap of abour $900 m4illlioTi in 1971; that anydeviation from the assumption will dramatically affect the size of the gap

vii. While it is generally agreed that Israel's need for borrowing fromabroad,-4 will bhe munch largor in thp 19)7n0s -han In the :JqTt. (Lfet^mrp th) mnvn-

tude of future requirements is more difficult to determine. Ierael's un-off4cial Ylan suggests that a cu-uit,i1-e eross in-lor, ,f -4,0 A,f) Tillio wil I

be needed in the 1971-1975 period; actual receipts during the previous fiveyears were IYc21, 50 lio0 mi t 1 4 4s-F "he slghtlm.re co nsservat.lve

projections of the deficit on cdrrent account made in th.is report, foreignrequirements would C!) AM 4'11 .1A_ ; * 1-* '01-3 -* 4_capLLd.L. L L UIICLA L WULU U0C v'.4 VVV XLU J'J t L ;JLL .LAA LI3L0LL %LL&0 - X O L 00 L

mates. After 1975, the need for gross inlflows of funds would continue togrow, chiefy to mainLain L et inflows at acon.stant level.

viii. In the late 1960's, tapid growth and defense requirempents broughtabout a rapid increase in capital inflows. A large share of this was pro-vided in the form of unilateral transfers, but more recently lean capitalbec-me increasingly important and I1rael's foreign debt rose substantially.Assuming thiat the latter pattern of financing will prevaii in tne future,the debt service ratio, which exceeded an estimated 16 percene in 1971,would continue to rise and may thus call for a reassessment of Israel'seconomic policies. especially a reduction of the present ambitious growthtarget. This in turn could spell the end of full employment and wouldProbably also irmply a lower rate of immigration.

I. INTRODUCTION

1. Israel has always made great efforts to encourage 4immigrat40njmaintain security and stimulate economic growth. Its economic developmentaontinues to be based on the imnorted Or Anquired ekill8 of it8 inhnbhtant8s,and on a very large capital inflow from abroad. In the 1960's the growthrate of real ner -ranita inrnm averaged S percent a year. RApid industrt -alization and the expansion of exports have remained the key elements ofthis growth.

2. Against this background, Israel faces a number of challe.ges thathave become more pressing as the economy kept expanding. First, laborshAortages 1-Mve beer. felt- more strongly a4r.ce lo97n wher. full a.lo-me-, areached. Second, defense expenditures have rapidly increased in the lastthree years. 'lL Uhrd, socIaal. ur,rest has pULWu;L a.LtL.LLLdJ.l Ud-<LI,LdU VAX Lor Ithe gKUVCLLL-

ment budget, especially for housing. Inflationary pressures have thus builtup, resulting 'in an overall rise in prices aud in an increase iu currentbalance of payments deficits. Consequently, financial problems have risento the forefront of government concern.

3. To meet these challenges, the Government has devised policies ofexport promotion, tax increases and credit management that have proven to begenerally effective. if these policies are continuea, wnicn is tne Govern.-ment's intention, and provided no major upheaval occurs in the Middle Eastpolitical situation, they should set the tone for the 1970's. Export growthcould be, more than ever, the prime mover of economic expansion, and also theprincipal means of improving Israei's baiance or paymenCs position. Nationalsavings could be fostered through increased taxation and judicious pricemanagement. Tne Government is aware that such policies will call for greatsacrifices by its people, and that a delicate balance will have to be struckbetween social and financial considerations. Thus the Government hopes to beable to maintain full employment with limited price increases, accompaniedby greater liberalizacion of toreign trade and flexibility in exchangepolicies.

II. RECENT ECONOMIC GROWTH

4. In the 1960's Israel's gross national product increased at an aver-age annual rate of about 9 percent, based to a large extent on gains in factorproductivity. This upward trend had been interrupted in 1965 when the Govern-ment tried to reverse Israel's growing dependency on external resources.While the resource gap did remain constant for two years, production stag-nated, and the shift of resources toward exports was less than expected.Consequently, in early 1967, the Government reverted to expansionary policiesthat brought about a quick recovery. A real boom took place in 1968 withoutput :Lncreasing by 16 percent, gross investment by almost 50 percent and

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exports by 27 percent. The expansioii has continued since then, though at aslower pace.

S. Tn 1Q7W aftepr thrpp ypea of rPnd-siiatenPnt tn more in'mnl growth

pattern, gross domestic product rose by more than 7 percent in real termsuinde,wr cnnditinns of full emnoiv _ent. Total demAnd, however, ircreased byabout 10 percent requiring a growth in imports of about 18 percent, whicheontinued the trend eghpurn in 1967. Public t-nnamnption grew much mnre thn

total demand. Gross capital formation accounted for 24 percent of GDP, aslightly lower percentage thn I te early 1960's. Exports increased byabout 10 percent while the growth in private consumption was limited to 3percent in real teans. TThe ad4-.amt.nan betweed.. demnd r.d- s upply t ook pl8

through an overall price increase of 6.6 percent.

6. The inflationary pressures that built up in 1970 appear to havebw-een stronger in 19 I71, whLen thley resulted iAln an overall pr jlce. -inceas - U- -more than 11 percent. Owing in part to the inflow of labor from the occupiedterr4storlesL , dULLI.omes;4c output probably grew by about 8 percer.t in real teLrms.The boom in private investment, especially in housing, continued, and totalJAome4c 4n,vesmn 4s e -A^ to0 hav recA pecn of GDP ; rnn,4 1eat,aD L t X.1 S V CO LUi .I L CO * AAIK LG U I IS VICL &I 1_ -Lw. at.Lv tIv'' . .. J L G

government measures and price increases kept the rise in private consumptionb-elo-w 5 percen.t, exports pro'ably expanded ly close to 20percer.t, muchU±W .J j.1 L I.UL LJLLU fII U.LJ C.J LLU U ) LIDO L U .U L.LL L IU.I

above the average of the second half of the 1960's. Imports of goods andserLvices iLncreaseU uy ,ot mUore thLan I'J percer,t ardU govern lm.ent consumptiULL1declined slightly.

Table A: Uses ana Resourcesi~nbillions of 1970 pounds)

1968 1969 1970 1971

Gross Domestic Product 16.3 18.2 19.5 21.5Imports 6.3 7.2 8.6 9.5

Total 22.6 25.4 28.1 31.0

Consumption 14.8 16.7 18.5 19.0Invrestment 3.7 4.3 4.7 6.0Exports 4.1 4.4 4.9 6.0

7. Industry continued to be the maIn source of Israel's economicgrowth. Value added by manufacturing, mining and quarrying grew in the lastthree years at about 11 percent per year and now accounts for more than onequarter of the domestic product. Apart from textiles, the growth occurredmainly in new branches such as electronics, plastic and rubber, chemicalsand metallurgy. Diamond processing, the traditional mainstay of Tsrael'siudus.r±al exports, slowed down in 1970 but recovered in 1971. Rapid in-dustrializarion has reduced the relative importance of agriculture, whichcontributed only o percent to domestic product in 1971.

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Table B: Net Domestic Product at Factor Cost(share in percent)

1965 1968 1971(Est.)

Agriculture 7.9 7.6 6Industry 23.7 24.8 27Construction 11.7 8.9 10Government 18.5 20.1 19Others 38.2 38.6 38

Total 100.0 100.0 100

8. The private sector has been sensitive to changes in economic activ-ity stimulated in large part by government spending. Private investment thusrecovered very fast from its low level of 1967, more than doubling between1967 arnd 1970. In the industrial sector theae investments more than quadrunl-ed during this period. Private housing was also very active, and by 1969 hadregained its previou.s neak of attivitv attained in 1965. The Covernment triedto limit its own efforts in the dwelling field, but social pressures led tosicnificant1v hicgher nuhlit expenpniituvrpe fnr hntl%Iina in 1970; thui adding

to the existing construction boom. To help contain inflationary pressures,the Go'verrment redued its investme.n.ts in public works.

Table C: G-ross Fixed IF4eeA T ent

(Percent of annual increase in volume)

1968 1969 1970 1971

Agricul.ture ardU Irrigation -I .5 =. -I.6U I=.Industry and Power 87.6 32.2 8.9 10.6U..4ng4 1 A. 9 27 Q 2'l 7 11 n

Services 38.2 20.9 -2.5 32.5 /a

Total 35.6 25.4 9.3 18.9

t. a Ii-.!~cluudes purc.'ases fL L iLanL.L LL sLhLIp andU ai.L LCL.L L.

W. In r.ew feature of the current econom=ic situation 'Ls t1he limited

growth of private consumption. In sharp contrast to the 8.5 percent averageannual growth i.n thlle 19760's, privaLte con.s-umptiOn inU-L 197. 0 geLW atL a LrL Uo.

only 3 percent and probably not much more in 1971 barely keeping up withpopulation, itcrease. Obtainled through strong fistal mMeasures, moderatewage increases, and a significant rise in prices, a reduction in the growthor private consumption was sougnt as a means of making room ror increasesin government consumption, especially for defense.

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III. CONSTRAINTS

10. In the past, the scarcity of mineral and water resources as well asa small domestic market and the remoteness of foreign customers have appearedas maJor constraints to development. The current situation, however, indi-cates some shift in the relative role of the growth factors, in part reflect-ing changes in government policies. Whereas the paucity of mineral and waterresources will persist, Israel is making concerted efforts to overcome themarket constraint. The expansion of exports, which in earlier years had beengiven less emphasis than import subatitution, is being pursued aggressivelyas a deliberate government policy. On the other hand, the growing scarcityof labor and rapidly rising foreign capital requirements may throttle thenroiected exnansion of the economv. The supDlv of labor and canital maythus become serious constraints in Israel's economic development.

Mineral and Water Resources

11. Israel has very limited mineral resources. Virtually all metals,many non-metallic minerals and important raw materials. such as wood andwood pulp, must be imported. The only metal found in Israel is copper whoseexnloitable reserves, located in the southern Negev amount to 17 milliontons. In view of the relative shortage of electric power, it is almost en-tiraltr pznnrt-.,l ,inrpfinpti i-n thp form of connper pmpnt. The main non-metill1ir

resources are potash and phosphates. About 900,000 tons of potash were ex-tratepd frnm the epnd Re1 in 1970/71 Thp nrndiu-tion of nhnsnhates was nbout

1.1 million tons. Phosphates reserves, mostly of relatively low quality,are found in the Negev. Th.e mineral evtrartion enterprises with theircapital intensive nature and isolated location, are government owned.Go,.,e-.rTT.ent policy .hns been. to cor.struct chemical complexes to utilize p%otash

and phosphate and their by-products to manufacture chemicals and fertilizers.

12. Possibly no other country has used its water resources to theextent of Israel. ThRe country isX estiw-ted to h0ave a presentl fresh waterpotential of only about 1,500 million m3 per annum and total water use has

llow reached that level. T-ne Government is planning to supplement waterresources in three ways. The first method is by recycling waste waterthrough an improved sewerage system. In 1970, nearly 20 million m- of wastewater was recycled. Second, some brackish water is used after desalination,but its cost is relatively high. Until such time as the cost of desalina-tion is reduced very considerably, Israel is not anxious to invest in alarge scale desalination plant. The third method of increasing water re-sources concerns artificial rain making. Experiments in daily seeding ofcertain areas of the Central Plains and Lakce KiLneret resulted in a 15 per-cent increase in rainfall. Despite these efforts, total water resources in1980 will probably amount to less than 1,600 m3 .

13. Water resources are controlled by the Water Commissioner whofixes norms for water consumption. Total urban consumption has increased

at a rate of only 1.4 percent per year since 1962. Industries havesecond prioritvy and the local Water Commissioner's Office exerts verystrict control on consumption. The quantity to be used by each industrialuni t i annprnuove and thp quota mAy be revined anntiall i*f neded.- Whileagriculture uses almost 80 percent of the total supply, it receives onlythe third4 p -piJrit . the allocatin4 proces -aotas -re fixe - a ord…ing

to crop and ecology. Control is also exerted through the local authoritieson pr4vate or cooperative sources that a^^o-unt- fo: about one third of totalwater supply. In addition to control of water uses, the protection of re-so r e an -l A.e _1- -9 - _*S4ASsAXtw411oA. ¢4_CUI}L=CIp a iu LACL LIvepn ofV Wa..L tteAr1s 5 vingtec&hiues WillJ V WJo

importance for Israel's water policies.

Labor iForce

14. Especially in recent years, Israel's shortage of labor has placed.L.M.LLal.LO1LC LJLL nLts oVeL4EL eC;UfLLOo m LUWLc LWI-LrOthLU.L which aoLUntedfor about half of population increases between 1948 and 1969, now representson'ly al,out a quarter of annLual 'LncremenLts 1ln population. Net U,'grationhas declined from an annual average of 167,000 in the first three years ofthe Staite to 15,000 per year from 1965 to 1970. A"LthouL gross -i1raLL.iL'L1

has increased slight:Ly over the past four years it may be difficult to reachtne projected gross infliow of 45,000 persons which is put forward ±ln Israelas an annual average for the 1971-1975 period. This would imply a consider-able rise in immigration from the Soviet Union, in addition to increasesfrom developed countries such as the USA, Argentina and France. Apart fromthe decline in immigration, the growth of Israel;s active population hasbeen restrained by the maintenance of a large standing army and the policyof high educational achievement.

15. rhe unemployment rate has fallen from 10.4 percent of the iaborforce during the recession of 1967 to 3.8 percent in 1970 and an estimated3.3 percent in 1971, most of which may be frictional. Regional disparitiesin unemployment have narrowed. Labor pressures have been partially relievedby the influx into Israel of workers from the occupied territories. Employ-ment in Israel, chiefly in construction and industry, from these sources hasrisen from 5,000 in 11968 to 22,000 in 1970 and 30,000 during the first tenmonths of 1971. Whet:her there will be further substantial inflow of workersfrom these areas in the future is highly uncertain. As a result, effortsare being made to increase the capital intensiveness of production tech-niques, especially iti industry.

16. In the recent past the Goverrment has had growing difficulty keep-ing wage increases consistent with the national objective of relative pricestability while satisfying the individual demands of the labor unions.Labor market tensionsi resulted in nearly 400,000 work days lost by strike3during 1970, far above the average of 123,100 during the 1960's. In addi-tion to their direct impact on production, strikes of this magnitude affectthe outlook of businf!ss operations and the overall control of inflationarypressures.

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National. Savings and Foreign Capital

17. Apart from 1967 when the investment rate fell to 16.5 percent,Israel has been able to direct the eauivalent of more than 20 nercent of

its domestic product to capital formation. Over the last four years, therate even increased to reach 26 nercent in 1971. On thiR arcniint it- miahtappear that financing has not been a significant constraint. There areindications, however, that capital may berome a limitinge fa-cntr in thefuture. The decline in national savingn between 1965 and 1970 reflectsa trend which will havp to be revrersed, especIally as the alternai-tve in-volves increases in foreign capital inflows above the already very highlpresent levels15

18. ~Whereas the share of GNC-e1uig h is af fte16'was of the order of 11 to 14 percent, this ratio has been going down sincethe deres4o yars tol-eQ tlhaq i -erc rt 4,, 1 Ctn Tt -o4.,.n A 4 e dA~~~~~~~--; r-- - f c _. - -__-1X - s.,,- |v - wev - kL v wwvout, however, that private savings remained at an appreciable level of over2gn9 per-centA of g6ross national incom.e. But, at the national level, thACOneseprivate savings were increasingly absorbed by public sector deficits.

19. Public savings were negative during most years since the establish-ment of the State, even thoughA Current .dec - o -f the blic sector re-mained fairly small until 1967. These deficits grew from If 268 million ir.1966t to IX 2,900 milliI on In; 1970, thua reachir.g about !53 percent- of GNn.* J/U LA L.L 4.,d ~' VL LU ±.L.LJ.AJ L .L. JIM C, &&U4 X A L~AA 0LiLLA I J CA L N L .3

Government expenditure has more than tripled over the last five years. Thefirst upsurge 'was 4in 1967 in an effort to reflate the AepresseA economr

In 1968, in spite of a dramatic economic recovery, increases in defensespen'u..i VIL -- prU eIL tU= ICUL.U LI UC-&L6 k4CUUC-- AJCL-40C CU-.Oy0- 4-LI_AJC.

from It 2.4 billion int 1968 to IE 3.6 bi.llion in 1969 and Tf, 5.0 b`llion iny77 U. AJDe'L erIs e h'aas been a mJaor Lactor in LLLhe deteriorationi oL publi;L:. scav-

ings and the decline in the mobilization of national resources. The burdenOL expenU'Ltures fLor secur.Lty on ,srael's econo,LLy 'Ls formidable. _Cense

outlays now account for more than 25 percent of GNP, about half of govern-ment spending, and direct defense im-ports for 24 percent of imUports of goudsand services. With such a burden, the room for maneuver and shifts ineconomic policies is very limited.

20. inflows of capital have steadily supported Israels econom.cgrowth. In 1970, net foreign assistance amounted to $1.3 billion or about$440 per capita. To a great extent, however, these infl1 owE have been asso-ciated with defense needs. First, a large share of defense imports hasbeen financed by loans specifically contracted for that purpose. Second,the support given to Israel by World Jewry has been in part enhanced by thepolitical uncertainties of the itddle East situation. This was illustratedby the increase in sales of development bonds and in unilateral transfersto Israel's national institutions since 1967. While net external assist-ance was of the order of $600 to $700 million between 1967 and 1969, dafenseimports ranged from $280 to $330 million. In 1970, these imports jumpedto $620 million and net foreign capital also doubled. If Israel now relies

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heavily on external financing it is as much in connection with the extra-ordinary 'burd.en of defense as for reasonrs inherent to its developmentprocess.

21. The year 1970 probably inaugurated a new pattern in capital in-r ell . n . I1,w*A_>_ aarn I _*-LoUWs. * WiLL netL AintLflows J.LL *Lth secon"L parL of tthML I u' U WCL UUWrd inLaCeJ

by unilateral transfers, net loan capital caught up in 1970, bringing totalrnet assista.ce to $1,2175 DilsW. Abursements of foreigr loars amontedto close to $900 milliLon; the net amount being about $630 million. A seconde'Lement, whicIh may bue of a temporary nature, bu t whLich relects tle growingshortagea of capital, Ls the heavy reliance on short term capital. AlthoughavaiLab:.e iJnLoriflaLL-iOn may no; be COmplee, LAr are nUU1lcanLsUU5 wnat ieraelcontracted more than $150 million in short term credits in 1970, at leastthree t:imes more than in previous years.

22. Tne resource gap accounted in 1970 for more than 770 percent oftotal capital formation. Theret is little doubt that recent trends in in-vestmenl: finance have to be reversed if Israel wants to sustain the invest-ment program implied by its economic growth targets. As is demonstratedin Chapter VI of this report, the continuous decline in national savingssince 1965 cannot be maintained in the 1970's. The growth in the debtservice burden would soon put a limit to increased reliance on foreigncapital inflows. The Israeli authorities are quite aware of these con-straintsB and are gear:Lng their policies to face the challenge.

IV. ECONOMIC POLICIES

Foreign Trade Policies-

23. In the last few Israel's foreign trade has undergone a shiftof emphasis that is likely to prevail through the 1970's. During a longperiod, rapid export growth was accompanied by Government's concerted effortsand general policy to substitute for imports. In the late 1960's, it becameclear that room for further expansion in the small domestic market wasrather limited, and future growth would have to be based to a much greaterextent on external markets. The Government is consequently giving priorityto export promotion, and its devaluation of the Israel pound in August 1971must be seen in this perspective. Success in the export drive would help toreduce external deficits, and would lend support to import liberalization.

24. Imports of raw materials and investment goods (excluding diamonds)rose by 14 percent in 1970 and were expected to increase another 10 percenitin 1971, while consumer goods imports have been sharply curtailed. Importedcapital goods now account for more than 60 percent of domestic investment :Lnequipment. Massive purchases of civilian ships and aircraft amounted to $220million in 1971 compared with an annual average of about $50 million over itheprevious five years. In contrast, imports of consumer goods, which had grownat 14 percent per year between 1965 and 1969, showed an absolute decline in1970. and now account for only 4 percent of private consumption and less than

- 8 -

6 percent of total merchandise importa. Excluding defense imports, 1/ Israel'sreliance on service imports increased from $263 million in 1965 to $435 mi.-lion in 1970. The burden of military equipment purchases, however, has in-creased much faster, especially since 1967. This rise, together with theincrease in interest payments, accounted for about one third of the growth oftotal imports of goods and services between 1967 and 1970.

25. Recent government import policies have aimed at limiting the overalvolume of imports and shifting the composition of imports away from consumergoods. In January 1970 an import deposit scheme was introduced, applying toall imports on which a duty of 30 percent or more was levied. In August ofthat year a number of existing import duties, including those on investmentgoods, were raised. At the same time a surcharge of 20 percent was imposedon almost three quarters of commodity imports. In addition, one year laterthe Israel pound was devalued by 20 percent.

26. Israel's export performance has been impressive. Export of bothgoods and services nearly doubled between 1965 and 1970, and export earningsincreased by 14.3 percent per year during this period. Furthermore, Jsraelhas become less dependent on traditional exports of polished diamonds andcitrus, wnhich in 1970 accounted for less than 20 percent of total exportearnings. Although adversely affected by a slackening in diamond trade anda fall in citrus prices in 1970, total export recovered in 1971, and, inclad;a 50 percent growth in tourist receipts, were estimated to result in an in-crease above 20 percent as compared with 8 percent in 1970.

27. The emphasis on diversification of exports is likely to continue.Israel alreadv holds a large share of the world market for diamonds. Theimportance of diamonds in Israel's net earnings is, in any case, ratherLimited. Since raw diamonds must be imnorted. the net contribution of thediamond industry to the balance of payments was less than $50 million in 1970.Witrh resnprt to Citrus; Tsrael has met strong comnetition from other Medi-

terranean producers. As a consequence, in the last few years the Govern-ment hars bheain nronmnt±nc thp ponnrt nf q wielp vnriptv of other aorir-ildr raland industrial products. Incentives, including direct subsidies particularlyfor -lothing a textiles; have been given to stimultp these epnortsz Thesepolicies have met with increasing success over the last few years.

28. Export policies have been so successful, in fact, that the Gov-.r.ne,nts h.a nMnde them n m.o4r le mer.t of is-c developmenn t a4 roen, Sine

1967, investments for export purposes have benefited from grants, subsidizedf4inanc4ng an t-ax red.uct40ns TSka,, 4he import 4urcharge was *rtroduced i-,

1970 rebates were given for the foreign exchange component of exports which,i. fat - ---r ------ -o.e.ate for the cost of ~t-esrhre Tn dit0J.L LdILL; L, LUVL C LuauLL t;L1a1:C = LUIL iLLI L K U _ L. JL L±1~ alL %iLL~Lr. 5 . ~ ~U. 4.I

to the 20 percent devaluation of the Israel pound vis a vis the US dollar inAugust 1971, another de facto devaluat-ion of the pound took place with tnechange in parity between the US dollar and the currencies of Israel's majorexport markets. Export subsidies were furtner increaseu in 1971 and the gapbetween the official exchange rate and the effective exchange rate of exportsmay now be larger than it wqas in 1970.

1/ Recorded under services.

- 9 --

29. Israel intends to continue its aggressive search for foreign markets.Strong effortr to penetrate the North American market have led to a more thantwofold increase £n commodity exports to this region in the last five years.The United States accounted for 18 percent of Israel's exports in 1970, whereasthe share of Europe was 49 percent. Current negotiations concerning the asso-ciation of Israel with the Common Market will have an important bearing on ex-pansion of the countr-y's trade, especially when Great Britain enters the Euro-pean Community. Finally. mention should be made of Israel's commodity exlortsto the occupied terr:Ltories which amounted te $72 million in 1970.

Fiscal Policies

30. To achielre its export objectives, the Government has taken measuires,in the last two years, to release real resources from domestic uses. As Lt wasdifficult to curb public spending because of heavy defense commitments, re-straints were nlaced on the growth of rrivate consumntion. There was room tolimit private spending and to increase the contribution of the private sectorto national savings since Drivate consumption in real terms bsd Rrown at t:hesame 8.7 percent annuLal rate as GNP between 1960 and 1969. Since 1970 theGovernment has r.-ntrAined nrivate eonnumntion through the use of tax increasnesThe resulting increase in public revenues was not sufficient, however, to pre-vent a ra- id incre'as in the cu,rrent publlc sector deflcit.

31. Pibl%l4c 4 -armant grew very aloml 2unil4 1970, reflecti g i.n partthe severe financial constraint on the public sector. A change in policytokl plalc 4in 1070 * v%tpulic c'apit4 al em , veA41tu..wmm i.a-e 4-reased sin^e tbe n

r___ -_ ." , r - - - - - -r ------ . &~ oS O.&.S. n4&

a rate above 20 percent, mainly in response to social pressures. The finamn-cial. neeAs of the pub14c sector av.e rlse. sccordir.y ,h -w-vAr arddspi

larger foreign financing the demand for resources by public authorities hascontributedA imporantly t-o ov,erall price increase--

32. Curr~e nt ex en itures of th-e Central Gove , " n r c e s d b b u.1'.. SurreitCI expenUJ"L.~ r O DA LL I_A %,L L~L VW JVLLUUCLLL ~LLLLILULt%U LJy aiUUU

30 percent annually between 1967/68 1/ and 1971/72. This steep rise in gov-er.e spendin was~LU.~ led by~S defer,s vutlays, wlose slare ir. -,-- cur buU=get grew from 48 to 59 percent, more than trebling in absolute amount overthis four-year periLod. A^ I U-1inistrative expend itures 'rncrease'd by 13 percenton the average, a relatively moderate growth when price increases are allowedfor. Le bI5dL ;LdIit, however, was exercised with respect to transLers,which now far exceed the administrative cost of the Central Government.

1/ The fiscal year, from April 1 to March 31.

Table D: Current Government Expenditures

(in millions of pounds)

1967/68 1969/70 1971/72

Defer.se 1,921- J,51 ,1

Administration /a 1,213 1,398 1,970In ___^ _ 000 *1 ,. . n1 ,, o-in±1ransfers ~ oou I¼O.j , Y

| ,[S.J ... Xb s ~~~~~~~~~~~t i rn ,O..... IsE5 C<

Total 40 A 432 11 I5

{'a including pensions and compensations

33. Tne expansion of Oudgetary transfers in the last few years nas

raised a number of important issues. First, interest payments, more than40 percent of wnich is on foreign debt, resuit from Government!s neavy re-liance on borrowing from both domestic and foreign sources. Second, therapid increase in export subsidies in the last five years refiects governmentefforts to promote Israel's exports. Despite the recent devaluation, theGovernment is not considering reducing these subsidies, which represented15 percent of the value of commodity exports in 1970. On the other hand,the current attitude of the Government may result in a relative decline inthe budgetary transfers for subsidizing the prices of domestically consumedcommodities. Tnird, the manner of transferring large sums in loans andgrants by Central Government to local authorities calls for a reform in thefinancial relationships between local and central governments, particularlyin relation to capital expenditure financing.

Table E: Government Transfers

(in millions of pounds)

1967/68 1969/70 1971/72(Revised Budget)

Subsidies 400 557 1,227Interest Payments 407 658 1,150Local Authorities 78 205 351O-hers 3 23 101

Total 888 1,443 2,829

34. The main feature of the capital budget in the last two years hasbeen the surge in expenditures for housing. In the context of a recent fiveyear plan for low cost housing which provides for a substantial public contri-bution, government loans for dwellings went up from IS 257 million in 1968/69to IL 1.055 in the revised budget for 1971/72. In spite of pressing demands

for bet:ter housing, it is now strongly argued in Israel that housing expendi-tures Ehul be_li4 ::e 144-atV least to tbeir curre-l 50 peren shre in h gvLUL & O UU± C *U4AAC r ~ *~ ~ - P& ~C *U W*L LSLC rWV

errnment capital budget.

35. To meet growing public expenditures, the tax effort has increasedvery rapdUly in the last three years. Total tax revenue went up frum 27 per-cent of GNP in 1968, where it had remained since 1964, to a record of 33 per-cent in 1970. in this effort the GOveerrnment hias relieU Lo a greater exterLt

on indirect taxes, whose share in total taxes is now about 53 percent as com-pared to 50 percent during the previous five years. Most of the additionaltax proceeds were obtained through increases in rates and imposition of newtaxes rather than through growth of national income. in fact, numerous ex-emptions and increased tax evasion eroded the tax base. Cost of living allow-ances, productivity bonuses, and additional pay for overtime work are excludedfrom the tax base and thus the impact of the income tax system, while indirecttaxes became less responsive as a number of important consumer goods were ex-empted. There is wide agreement on the need for a reform of both direct andindirect taxation, and for the taxation of services which are outside thereach of the present system. A tax reform would improve the responsiveneEsof government revenue to changes in income, and would also help to increasenational savings by containing the growth of private consumption. With theseobjectives in mind, the Government has appointed a committee to review thetax system. It is already known that the committee will recommend wide rang-ing improvements, including changes in the schedule of income tax rates andthe introduction of taxation on value added. The Government intends to carryout this latter reform by the end of 1972.

36. Despite the remarkable tax effort made during the last four years,the overall deficit of the Central Government has more than doubled since1967/68. Moreover, repayment of domestic and foreign loans has grown at thesame pace, and total financial needs were expected to be close to IL 6,000million in 1971/72. The revised budget for 1971/72 provided for domestic fi-nancing from non-inflationary sources of about IL 2,000 million, compared withIL 900 million in 1967/68. Sales of government bonds often linked with taxfree savings plans and tied to the price index or foreign exchange parities,have been very successful. The Government has also relied on compulsory loans,whose proceeds were estimated at about lE 1,000 million in 1971/72. In viewof their adverse psychological effects, and of the burden of their service,the Government may decide to eliminate some of these forced loans in 1972.

Price and Monetary Policies

37. Inflation has been a traditional feature of Israel's economic growth.In the first decade and a half after the founding of the State in 1948, theconsumer price index rose at an annual averaae rate of 10 percent. Price in-creases were smaller during the depression of 1966/67 and in the followingrecovery but resumed itheir pronounced upward trend during 1970 when consumerprices rose by 10.1 percent and wholesale prices jumped 11.3 percent. Allpotential forces to increase prices were present in 1970. First. a shortage

- 12 -

of labor helped to push wage increases to an average of 8.6 percent whileincreased employer contributio-ns to National Insurance and other funds ledto a rise in total payroll expenditure per employee of more than 13 percent.Second, the 20 percent surcharge placed in August on imports contributedfour points in the percentaoe increase of the consumer price index in 1970.Thirds public deficits continued to rise rapidly. Ttis pattern has prevailedthrough 1971, with essentia:'ly similar results. The 1971 rise in wages mayhave reached 16 percent, compared with expected price increases of 11 to 1.percent, about a third of which has been attributed to the devaluation of theIsrael pound in August 1971.

38. In the face of these developments, the Government is aware of th^need for austeritv. It now aims at limiting nominal wage increases for 1972to a cost of living allowance totaling about 8 percent. In exchange, it isconsidering the reduction or eliJin'nation of a number of levies on gross salary,which would result in a total increase in net wages of about 9 percent, com-pared with estimated 1971 price increases of 11 to 12 percent. 'The success ofthis policy will depend chiefly on the degree of governrment control over pricesand profits, and on the trade unions' willingness and ability to restrain thewage demands of workers.

39. During 1970 and 1971 employers undertook voluntarily to controlprices. A committee composed chiefly of businessmen but also includingtrade unions and government representatives approved price increases on rmanuifactured goods when justified by rises in the cost of raw materials. Anoth,rcommittee, in which consumer groups were also represented, dealt with servicesand trade. In August 1970, the Government felt the need to establish a moreformal price control, while accepting increases in indirect taxes as an ad-ditional justification for price rises. The committees were maintained andthieir recommendations have been generally f-ollowed by the relevant iinistry.There are conflicting views about the effectiveness of these controls. Theadvantage of preventing excessive price increases has to be weighed againstpossible distortions in resource allocation. This issue may become even moreinmportarnt in the event taxation on vralue added is introduced.

40= The nrine controlT were established when the Government felt thatmonetary instruments were not enough to contain inflationary pressures. Until1970, the monetary authorities hnd hben able to satisfy the rpediit nepds ofthe economy while reducing the rate of growth of the money supply. After the1967 reflaoary measures and the 1968 boosm, the mponey supply asa percent

of national product gradually declined. Heavy demands for domestic credit,however, were partly offset by a reduc t4on of fore4gn reservess. Th6-, -.,41

domestic credit grew by 41.3 percent in 1969, the money supply expanded byoi'Ly 2.5 percent and net foreign assets6 de-lined b- (--y 44. -ercr

4; I .Lnce I I U9 LLUW VeCL hLei .1JLt.LcL in UUIcIC, LL%; creudL Lh Las bieen accomU

pauied by raDid monetary expansion since foreign assets could not be furtherreduced. Domestic cretit rose by 28 percent in that year and b-y 4U percentbetween June 1970 and June 1971. During this latter period, credit to the

- 13

private sector increaLsed by about 25 percent, but this rapid expansion wasaccompanied by an evetn greater increase in the absolute amounts of time de-posits. The growth cif these deposits has been stimulated by a number of in-centives, including tax advantages and linkage with price indices or foreignparities. Deposits linked with foreign parities account for about 15 percentof total quasi-money; their value increased with the devaluation of the If3raelpound in August 1971. In the final analysis, inflationary pressures camealmost exclusively from government deficit financing. Bank claims on govern-ment rose by 60 percent between June 1970 and June 1971, or by the equival.entof one third of central government revenue for 1970/71.

42. Total money supply increased at a monthly average rate of 1.1 percentin 1970 and accelerated during 1971 with a monthly average rate of 2.5 petcentin the first six months. Restrictive measures, including an import depositscheme, contractionary open market operations and increases in reserve require-ments did not succeed in limiting the monetary expansion. More drastic con-trols were imposed after the devaluation of the Israel pound on August 22, 1971.Ceilings were placed on bank credit not sanctioned by the Government; later onthis non-authorized credit was frozen as of November 4, 1971.

43. The Government plays a major role in the distribution of funds, whichgives it a powerful influence over the direction of private investment. I'n theform of "directed credits", the Government sanctions short term financing tocompanies in development areas for up to 50 percent of their working caDitalrequirements at 9 percent annual interest, compared with a market prime rateof 16 nercent. It also subsidizes almost all working canital reauirements forexports financed by the banking system at 6 percent annual interest, regardlessof nlant Ionatinn. Dlirected credits acrconnt for ahontt 2R nerrent of total hankcredit to the private sector. Concessionary long term loans are also given atA rate betwppn 6 1/2 and 9 nperent for nrioritv inuprtmpntsr Tnetitutionn,1

investors are the major source of funds for the capital market. They must,however,j invest 85 On 90 nperrent of their futnd in govnrnmpnt bonds or gonxrrn-ment approved securities.

V. XCONOMTC PROSPECTS

The Objectives

44. Israel has made great efforts to encourage immigration, maintainert itv,n nrdomot peconomic arv.yth Tte nrfanrmnn,.a 4n tha, t rvoan,-ta

j r 0_ c- - -- . ---- i h shas been remarkable. Besides continued growth, increased attention has been,-iven. i-n recent -ears t wo other economic obJectives: export promtlon

and full employment. In 1970 full employment was obtained, and the Govern-ment now, aims at a genreral imnrovem.ent of social conditiors. On the otherhand, recourse to inflows of foreign capital has increased to a considerableextent. More than ever, i- May be A4iffcult- or TIrael to reconcile these

often conflicting goals.

14 -

W45aL.VCL ±LvLLts econom l; ur social pulicies 'nave Deen, Israel nasalways had one overriding objective: Building a Jewish homeland. Govern-menit policy 'nas aimed at increasing thae number of jews in Israel as rapidlyas possible, traditionally through immigration. At present, though, thereare signs that the rate of natural increase or Jews in Israel imay be risingslightly. At the same time, this rate is eclipsed by the rate of naturalincrease of non--jews, whose birth rate is among the highest in the world.For this reascn and because labor shortages have led to substantial temporarymigration of Arab labor from the administered areas, the Government!s actilv,7immigration policy is likely to continue.

46. Building a Jewish state has implied a constant need for security.Defense has absorbed a large proportion of total resources and in 1971,reached unprecedented high levels. Recently, however, questions have beenopenly raised in Israel about the .level of current military expenditures andthe need for continued increases in defense outlays. Naturally, as futuredevelopments in the Middle East cannot be toreseen, it is not possible topredict the outcome of this controversy with any degree of certainty. Of themany alternative assumptions made in Israel about the future detense burden,one has been retained for the purposes of this report: Within the next fiveyears, th: share of the government budget allocated to defense (as weLl asits share in imports) is assumed to decline slowly but continually. Thisassumption is made in tull awareness that securitv will remain a majorconcern of the Israeli Government in the 1970's, and a factor of crucialimportance in the country's economy.

47. One of the Government's major policy goals is to continue the raDidexpansion of the economy. To this end, great emphasis will be placed on fullemployment of labor and more efficient utilization of industrial capacity.The main constraints to long-run growth are balance of payments deficitsand the increasing burden of external debt. In pursuing a policy of growthwith full employment of resources, che Government is aware that strong andpersistent inflationary pressures will beset the economy. The extent to whichIsrael can maintain rapid growtlh allowing for an improvement in external pav-ments iS the major economic issue of the 1970's.

48. A variety of economic projection plans have been prepared in Israel,the most elaborate of which examines the impact on future growth of alternativeassumptions about the level of defense expenditures and of immigration. ThisPlan is presently being updated by the Economic Planning Authority in the inii-istry of Finance. Although it has not been officially approved, it reflectscurrent government thinking and serves as benchmark for future policies. ThePlan includes seccoral programs for 1971-75 and general prospects for thie econ-omy up to 1980.

49. As is usually the case with such documents, the Plan sets a numberof targets that may be difficult to reach. The output target is an annualgrowth in GDP of 3 nercent, brought about by an increase in employment of 3.5percent annually and an investment rate of about 23 percent. Such a growth

- 15 -

rate, although very ambitious, would not be impossible to achieve. Consider-ably more difficult, will be the projected substantial reduction in the re-source gap.

A Set of Assumptions

50. Israel started this decade in a situation of full employment oflabor and some room for better utilization of productive capacity, especiallyin the industrial sector. The supply of labor may be the main constraint ofTIrael'8 er onomic growth in the early 1970's since canital may still be rela-tively more abundant. In the long run however, the marginal cost of capitalmay he murh higher than now an the demand fnr adeitional ftund8 itnt-rrasn Themain issue of the 1970's is to weigh the cost of mobilizing additional capitalaaainst that of accelpting, Rome unemnlovment,

51 The assumptionR tinderlvin., the Plan'n lahnr 8upnnly nrnoierinn areprobabLy on the high side, especially when compared with recent trends in immi-gratlon and labor force partlc±pat±on. On the other hand, no provision in,

made in the Plan for the temporary workers from the administered territories,w-hich mrled more th:an v n,o--ant of tha lsihnt fn TI 1q70 The ^targ_ ofa 3.5 percent annual growth in the labor supply can be reached only through alarge :!nc-reas-e in temporar- imigration. Inr view of the full opl,.ent n-uation in the West Bank and political pressures within Israel, such a policymay be d4ff4cult to adopt. %Future -rowth of lauor proAuctiy4.4- 4i pro4jecte

in the Plan at 4.5 percent per year, compared with 5.5 percent in the 1966-1970periou, bLut only 4.1 percent in. 1970.

-52. rProviLdLLed tlhat no ma-lor political upheavals occur .Ln the region,the growth of Israel's domestic product could probably range between 7 anti8 perc,-n i,L the 1971-1977 per'od. Value added by industry uleay go up by al-most 11l percent per year, led mainly by the production of electrical andelectronic equipment, iinihedu text2iers anu assumng that the processing ofdiamoncds will grow at: not less than 6 percent. Manpower shortages may bepartlcularly fLeLt in Lnustry whiere Labuor requLIrements -W increase faster

than the total labor supply. Agricultural production may grow at a rates11ightLy lower th-an projectedu in the rlarn.

53. Although ii: can be agreed with the Plan that some decline in theinvestment rate coulcd be obtained during the next few years, a number ofrecent elements that were not known to t'ne authorities at the time of thepreparation of the Plan must be taken into account. First, the ratio ofgross investment to ur Pis estimated to have risen from 24.1 percent in 1970to more than 26 percent in 1971, owing chiefly to large purchases of civiLianships and aircraft. Second, demand pressures for dwellings will probaDlylead to a construction rate higher than that projected in the Plan. Third,the prcivisioxns for inventory increases may be too conservative. Taken to-gether, these developments may result in a 1977 investment rate close tothat of' 1970 and an overall incremental capital-output ratio around 3 to3.5. The investment rate obtained in this manner is only slightly different

- 16 -

from that projected by the Plan; but over the period considered its impacton capital requirements becomes significant.

54. In line with current government policies considerable efforts tolimit consumption and increase savings will be required in the future. Thegrowth of orLvate consumDtion was kept below 5 nercent in 1970 anrd 1971 onm-pared to an average annual rate of 8.5 percent in the 1960's. The Plan as--sumes a future growth in nrivate conRumntinn of 5,2 nperent, and th4e Goer-r-ment plans to use the tax system as its main instrument to achieve this goal.No exnlic1r nroiection of the government biuidget iR 4uven hut 4it- couild he

assumed that government revenue may more than double over the 1971-1977 pe-riniid f tr2 refnrmq are c2rr4ied not i!n the near fuit-urpe TArrtl guidance!s i_

available on prospects for the evolution of public consumption. 'rhe plannershnr indiate-da a growvth rat-e of A nprcent- ir dafaenas AvenAit-1-re which im-,...

plies a alow decline in the ratio of defense expenditure to domestic product.If a smi4lar assumption is adopted a.nd if other government expenditures, par-ticularly current transfers, are projected independently, the public sectorde4cit- …-1A …-14ne b -y au a thid4 ve the .1Q711Q77 -e-io4- Th-

a marginal domestic savings rate of 30 percent over the period would allowpri.yvate i-ncr.smpnt-ion to- inc-repas 1y 5 nppr,cpnt annu1al.u- Tha requrevi da' sanirng-

effort would be remarkable and may be difficult to obtain.

55. Projections are by nature illustrative, and in the case of Israelthey .a,. laynn olalm, ~.1 ., 4 i to nini, 4- f n -cur- 4 f c n Nevertheless, if

mobilization of domestic resources takes place at a marginal savings rateof 30 percent, the country by 1077 m-sy hben able to- fin ance more than ;f ler-

cent of its investment from domestic resources as compared to about 20percent in 197A The -. 4-1Q4n -4- 4-m14 0 A 4, tI.,- D1- 4n Q _w- CM IBZ v * I v # V ¢ - L6 L tit. V I 0t W p0 .JVJ w L

cent, which would permit this degree of economic independence to be reachedaD earl y as 1975.

JU. mproveulnts u te resource gap wil lo"'ydrs- hneropLveuents 'LnL LLA~ ~LuI WL4JJ . o .UILFLy ULaM L2_ ._age

in the pattern of Israel's trade in goods and services. Imports of militaryequipment WJi. ue UoL >L a'L'A. ip0rta-InCe ±1L LLIU * t bPLL. dg d LLI a

critical assumption Is that direct imports for defense would stay at their 1971level of about $650 million. hnis amount is of such a magnitude, comparedwith a resource gap of about $1,100 million in 1971, that any deviation fromthe assumption will dramatically affect the size of the gap. It is arguedin Israel that the growth of total imports, excluding defense items and rawdiamonds, is linked with the growth in domestic economic activity and theincome elasticity of imports is about unity. While one can generally agreewith this relat4onship in view of the heavy dependence of production on im-ports and the limited opportunities for further import substitution, it isdifficult to assmne that this elasticity will be below 1.3, as implied inthe pro4ections shown in Table F.

- 17 -

Table F: Exports of goods and services

Annual Rate of Change Value in Millionsin Percent of 1970 US dollars

1965-1970 1971-1977 1970 1977

Exports of Goods (f.o.b.) 14.4 12.5 792 1810Agricultural Products 7.9 6 126 190Industrial Products 12.8 14 585 1470Other . 9 81 150

Exoorts of Services 15.6 14.3 593 1510Transportation 1201 13 262 610Tourism 13.4 20 103 370Others 22.0 13 228 530

Total Exports of Goodsand Non-Fartnr Rprviren 14.9 13.3 1385 3320

Imports of Goods (c.i.f.) 11.8 10.5 1387 2800Consumer Goods 11.0 8 140 240Raw Materials, of which 11.1 10 941 1860

Diamonds (9.7) (6) (154) (230)Investment Goods 14.3 11 350 700Adjustments . . - 44

Imports of Services 23.0 4.1 1059 1400Defense 41.5 - 624 650Others 10.6 8 435 750

Total Import of Goodsand Non-Factor Services 16.0 8.0 2446 4200

57. If current export policies are examined in the context of past per-formance, an annual growth rate in exports of goods and non-factor services

greater than 13 percenit may not be an unrealistic target for the 1971-77 pe-rind; even if the two princinal cnmmnaitv tepnrts (nrnoassad diamondA and

citrus fruit) do not grow more than 6 percent per year. Israel's efforts todiversify it; exnorts mny well restlt in a fiur.t-hpr decline in t-ha oshare nf

these commodities in total export earnings, now around 20 percent. Exportsnf friisi i nt-her than citrusj and nf fresh vegetatlnen and flowers will pro-bably be the most dynitmic among agricultural exports, with a growth rate thatmay exceed 10 perc per year,- Ajno industrial goods, therethat knitwear and communications equipment may be the main exports by 1977.The three industrial branches caontributing most to exports wouldd thnus be itex

tiles, electronics ancd chemicals (pesticides, tires and pharmaceuticals). Re-cent investm.t..e i. Ships anr. aircraft mmay 818.0 A4-*..Ot U4-u expect-tior.a as

to service exports. l'his optimism may be even more justified in view of t'he

- 18 -

50 percent upsurge in tourist entries in 1971, which, if sustained, can in-crease earnings from tourism by an average of 20 percent annually over the1971-1977 period.

58. In spite of the anticipated growth in exports and the assumed stag-nation in defense imports, the current account deficit of the balance of pay-ments may deteriorate, largely on account of foreign debt servicing. ThePlan assumes that most defense imports will be financed through foreign bor-rowing. The experience of the last two years lends some credence to this as-sumption. although it may happen that a financial response from World Jewrvwould result in an increased flow of unilateral transfers. In view of un-certainties in this domain, as in others, it is preferable to re]y on theprojections of the Israeli planners. Because of the decline in restitutionpavments from Germany. unilateral transfers are thus prolected to be slightlvlower in 1977 than in 1970.

59. In the last three years, the flow of direct foreign investments has8lowly renovered from the low levels of 1967 and 1968. but in line with theassumption with future defense expenditure, no major trend is projected. Inthe latter nart of the 1960's Israel was able to draw down on its foreign ex-change reserves. At the end of 1970, net reserves amounted to $336 million.This does nnt nrnoide m,u-h room for fuirther iiti1i7_qt-ion of rsrvpsj anc

Israel in the 1970's will have to increase its net foreign assets in ordertr lkepn un with ftiviii-, -nerpszQPQ in imnnrt::

Table G: BaaRnce of npa,mwnta

tin mwlions f curren US dllars) /a

1970 1977

V- ports o. loods an' Servicea 1,45574,0A. %Y . .4.J A. .R fff

of which, Factor Services ( 72) ( 160)Imuports L 0u of As and Services 2-2,6'765,

of which, Factor Services ( 230) ( 740)Unilateral Lansfersi , Uet 6J3 570

Private Direct Investment, net 30 100Short-Term Capital, net - 65Change in Reserves 56 - 140Gross Capital Inflow 897 1,600Amortization - 208 - 530Errors and Omissions - 127

/a Assumes average annual dollar inflation of 2 percent

The External Debt

60. While it is generally agreed that Israel's need for borrowing fromabroad will be larger in the 1970's than in the past decade, the magnitude of

- 19 -

future requirements :Ls more difficult to determine. Israel's unofficial ?lansuggests that a c-mulative gross0ea i.flow o $4,400 mi114^r .411 wl ber.eeded in

the 1971-1975 period; actual receipts during the previous five years were about$2,500n u-lllion. O. 1: hle basis of: thek slightly more consen-rat-v r1etol

of the deficit on current account made in this report, foreign capital re-qu-irem, ints woulU bue !e , n0 n Allior. higher thIan the Plan's * riter

1975, the need for gross inflow of funds would continue to grow, chiefly toL,-iLantaJLn nLICt inflows at a constant level.

61. Ir, Jun,e 19;71, the exteLral log and medium term debt of Israelreached $2,900 million. Israel's foreign debt per capita is a staggering$1, 000,, the highest .Ln the -world By 1977, the total foregn debt -maytreble,, and service on this debt may amount to about $900 million. Al thoughthese f'iguresi appear 'large in abs-olute Le:rms, Ltey have Lo be LInLerpreLed in

light of the structure of this debt and the overall performance of the ec:)n-omy. Trne average terms of Israel's external pUDiiC deDt are generally favor-able. The grant elesaent of the debt outstanding as of December 31, 1970,calculated a: a 10 percent discount rate, was 36 percent. Tnis reflects inpart the ample subscription to government bonds issued abroad which accountfor more than one third of the country's foreign debt. Tnese bonds havematurities extending up to 15 years and usually bear an interest rate of 4percent:. They are generally "rolled over", and the total amount of publislyissued debt outstand:Lng has increased every year. Moreover, it is reportedthat the foreign exchange proceeds of the redemption payments are often con-verted into Israel pounds. In addition, since 1969, government loans havebeen contracted with the United States on very concessionary terms. For ex-ample, a IJS loan approved in 1970 provided $350 million at an interest rateof 3 percent and allowed a repayment period of 27 years including two yearsof grace. Similar loans were approved in 1971 and 1972. However, Israelhas also increased its recourse to more costly sources of external finance.Long term loans to the Government from financial institutions went up by$110 million in 1970., while private debt rose by about $90 million.

62. Debt service payments were projected by the Treasury at $281 mil-lion in 1971, or some 16 percent of foreign exchange earnings. These pro-jections may not take into account all obligations, and actual payments asshown iLn the balance of payments may eventually be higher. Assuming thatthe share of the private loans in the total will increase slightly the grantelemeni: on debt to be contracted in the future may be taken at 28 percent.This means that in 1977 total debt service payments may amount to about $900million. If export earnings grow as projected in the 1971-1977 period, thedebt service ratio, would exceed 23 percent in 1977. This projected ratio,it must: be remembered, has no more than a purely illustrative value sinceit results from a great number of assumptions, the most sensitive of whichis the future level of defense expenditure as a reflection of the develop-ments iLn the Middle East situation.

63. The expected future increase in the debt service burden resultsfrom a basic change :Ln Israel's economic position. The debt service ratiodeclined to about 13 percent in 1967, as the country became less dependent

- 20 -

on foreign capital. In the late 1960's, defense requirements and rapideconomic growth brought about an increase in capital inflows. The aboveprojections assume that defense imports will not increase further. If,however, defense imports cannot be contained, the debt service ratiocould rise faster, and may thus call for a reassessment of Israel's eco-nomic policies, especially a reduction of the present ambitious growthtarget. This in turn would spell the end of full employment and wouldprobably also imply a lower rate of immigration.

ANNEXPage 1

D)EVEIOPMFNT OF MAJOR SECTORS

Agriculture

1. Technical efficiency in agriculture has been achieved through largeinvestments inwtr develop-ment and mod---m arir1tural implemnents, and the

adoption of new biological techniques developed both domestically and abroad.Most economies of scale available to agriculture probably have been realizedby using 'Large sized equipment and efficient production organizations, and inhIe case of the ,lorha.vi.. by hold4ng utrl4.La -in col-..non or I -C- bIyI £. t coo

eratively. Governnent- policy has been instrumental in achieving this highleve'l of develop,,,e.it. 'J"1 e Goverr=.ent anAd the 'zwi 1St, Ageny mainain wd--J.VC gen~~UIC~L. JII .V .I~lL ~L LC . W~I£r cL .V ma.Jint LCL wJUc

spread extension services of high quality which provide farmers and farmerorganiZations WItiUl de.tailed information on prodIuctiLon anu r,ark-eting and con-duct special training programs. This strong support of the agricultural sec-tor has been motivated - especially in the past - by the uesire to achieveself-sufficiency in food production and to settle border areas with ruralcommunities.

2. 1The agricuitural sector is assisted and extensively controlled atall stages of production. Production has been encouraged by output and inputsubsidies, and by tariffs and quotas on agricultural imports. Agriculturereceives large income subsidies, though they are lower than in the past years.In 1969/70 subsidies represented about 18 percent of agriculttural income com-pared with 20 percent in earlier years. One reason for this decline is thatsubsidies on cheese and cotton have been dropped. Despite the high level o.fsubsidies, the average earnings per worker - hired and self-employed - ir.

agriculture is 70 percent ot that received by non-agricultural workers. irsubsidies to agriculture were eliminated, this proportion would drop to !5percent. Policies to achieve self-sufficiency In food production have hadsome m,easure of success, and several branches of agriculture have encountereddemand constraints. Consequently, prodtuction quotas have been established tobalance supply with demand and prevent prices from falling to unprofitablelevel. Agricultural output is now controlled through production quotas, per-mits for the planting of orchards and vineyards, and indirectly through u,raterallocation. Furthermore, thirteen production and marketing boards have beenestablished.

3. Agriculture continues to decline in importance in terms of its con-tribution to Israel's GNP. In 1970, the agricultural product was only about6 percent of the total, and 9 percent of the labor force was employed in thissector. Real growth in agriculture in 1969/70 1/ was about 4 percent, up fromthe previous year's 2 percent. Although an increase of 10 percent has beenestimated for 1970/71, some slowdown is to be expected in the long run. Theproductivity of resources is high and will probably continue to grow but there

1/ The agricultural year, from October 1 to September 30.

tiLNLN F..A

Page 2

.is 'less available technology to exploait tLilan thilere was JW l tLe earlier years ordevelopment, especially in the 1950's. Total productivity in agriculture roseby about 2.4 percent in IO9O/u9 and 1969/70 afl.t remaining steady in 1907/68

when the economy was recovering from a depression. The annual. rate of growthof this producrivity was over 8 percent in the 1955-60 period and rel toabout 4.5 percent i! 1960-65.

4. Water and labor may be the most serious constraints on outputgrowth. water costs conmprise a nign percentage or tne value or output of mostcrops. For example, water costs represent half of the value of a hlectare ofcotton - ni6, gh valued crop. Tnus it is not surprising that present agri-cuLrUal p-oli4cy lool-s for better weter outpur ratios and etncourages the.roduction o- trults, vegetabies an-.d horticultural crops for export. Theagricultural labor force which has been declining about 2 percent per yearuropped a dramatjc 7 percent in 1970 when strong growth in other sectorssiphoned off agricultural labor. At present lalbcr shortages are felE throughoutagriculture, in spite of the reliet obtained by employing workers trom, theadministered areas.

5. in recent Years, planting of citrus aud other orchards and waterdevelopment 1:ave declined to relatively low levels. Whnereas these investmentsaccounted for half of agriculture investments in 19h5, they represented onlysliht-lcy more than a fourth In 1910. Investments in greenhouses and hotlhouseshave expanaed quite rapidly in support of the export programs. On the currentinput siae, feed, fertilizer and pesticides and other means of plant and animalprot.,ctJon are expanding fast. These inputs probably will account for alarge part of tne increase in agricultural outrput in the future. Aiso, thecurrent pregram to improve the efficiency of water use certainly has a greatimportaance ror future output growth since water resouirces available for agri-culture ire not expected to Increase.

0. Doumstic markets are not9 expected tO expaiid as fast as in rie past.Domestic demand for food grew about 2 percent faster than population in theVast eight years. and In l7I, deiiand for agr2,cultural products only rose 4uercent. Thie aigi level of coiisutmr iicornes and food consumption reached inisrael is reflected In aii income ela' t4 city of demand for food of 0.4. Futuregrowth wil h.ave to rely more on roreign nmarkets.

7. Export -earnings from agric- lvu're 4 ncreased at alumost 8 percen, peryear in che second half of the 196i0's. In 19'0 they 5-rew only 6.6 percent,uainlv owing ro a drop itn the prIce or fresh cirrus. Agricultural policiescon,tinue to be directed to pronmotlon of products that have a large exportvalue relative to domestiL inpitrs. Tri export value added of citrus is about7,: ne-cent ana rankks among the hi.,hnest -for all tYpe!: of comuioditv exports ofIs-ael Fowever, because of increasirtg competition from othier !-'editerraneancirrus rIrn(t,crs -in the, Frnnpan mar)-erR_ critrus exnansion. esoeclallv fororang,es, htas been deemphasized and crchlards have remlained steady since the>.v~ ri--st r4. -('4-t-s r_rijl is the 'mcs i nnc rtajp nt- agricult-ural podcuct group;

accounting for percent of rhe tetal value of agricuitural production.

k-UN'N ELA

Page 3

About ninety percent of the total crop is exported, 65 percent fresh and 25percent in processed form, and accounts for nearly 25 percent of the exportdollar value added. The citrus crop of 1970/.71 was the largest on record,topping the previous 'high crop of 1967/68 by 20 percent. Marketings alsoincreased, with prices recovering from the 1970 low, principally because ofa poor crop in Spain. The current crop in Israel is forecast to be as largeas in 1970/71, and soime difficulty is expected in obtaining sufficient laborfor harvest. The new emphasis on exports of flowers and winter vegetableshas been quite successful. However, it is impossible to know at present howlong this program can be continued without additional studies of Europeanmarkets.

Table H: Agricultural Production

Growth Rate1964/65-

1959/60 1964/65 1969/70 1969/70(thousand tons)

Ci.trus 609.2 878.3 1261.9 7.5Vegetables 296.2 306.7 472.3 9.0CottoTn 10.7 21.5 35.3 10.4

Share of above: (Percent)in total va:lue ofagricultural output 24.3 28.7 31.7

in total va:Lue of crops 47.9 49.8 55.5(thousand tons)

Milk 350.4 405.1 537.7 5.7Eggs 55.7 64.8 65.3 0.2Potiltry 45.7 74.0 101.7 6.6Cattle 25.1 30.9 35.6 2.9

Share of n blr e: (Percent)in total value ofavricultural outputn.n. 40.6 35-8 36.3

in total value of livestock 82.6 84.4 84.4

8. The objective of self-sufficiency in food production has been onlypart].y achi.eved. Cerea].s, seed crops, and some livestock -roclucts are among,the slowest growing branches in agriculture. In view of the relatively largeam.nount co f subsidi-4es r equi -red by their relatively high cost, the Governmenthas slowed dowm the promotion efforts undertaken with1 success in the 1950's.At present, 90 percent of the cereals, 45 percent of the beef and 50 percentof feed requirements are imported. On the other hand, self-sufficiency hasbeen achieved in mil.k, poultry, and egg production. From time to time theseproducts are exported to remove surpluses from the domestic market. Theproduction of cotton has expanded vell r apidly sind. HICw introduction in1953. l't now suippliesi almost all of domestic demand. However, raw cotton

Ah-NEII

Page 4

is exported to take aavantage OI certain quajliy needs and price differen-tials. In the earlier years, cotton production was heavily subsidized, butthe crop has become quite profitabi.e and direct subsidies were discontinutedin 1968.

Industrv

9. For many years Israel's industrial development has proven verydynamic despite limited natural resources and certain deficiencies in struc-ture. Since the mid-1950's gross manufacturing and mining output increase(!at an average annual rate of more than ii percent a year. it has been amajor factor in the growth of the domestic product. In 1970, industrial valueadded at current factor cost represented 26.2 percent of net domestic pro-duct compared with 23.7 percent in 1965. This development has been largelydue to government policies which aimked at ensuring the protitability of in-dustrial operations.

10. While stressing industrial development, the Government does notintend to increase its direct role in industry. Private investors own morethan 90 percent of industrial enterprises, and accotint for 73 percent ofindustrial. output in 1969/70. The trade unions and the Government accounte:respectively for 19 percent an(d 8 percent of production in that year, and ;roughly similar proportion of employment. Whereas private investment coversall industrial branches (the important textile industry is almost totallyprivately owned), over one-half of Ilistadrut investments are in the st-eel,metal products, electric and electronic industries while the industrial in-vestments of thie Government are almost exclusively in mining and quarrying,and organic chemical industries.

11. Private initiative has been encouraged by a number of specificprograms in addition to general economic policies aiming at stimulatingeconomic activity an(d exports. Under the Law for *he Encouragement of Capi-tal Investments, t1he Government assists investments directed towards exports,development of certain regions and import substitution. It provides invest-ment grants for building and equipment, development loans at an interest rateof 6 1/2 to 9 percent and certain tax concessions. The majority of the long-term loans are extended by the Industrial Development Bank1 of Israel.. TheLaw for the Encouragement of Industry provides for tax concessi olis espe-ciall.y encouraging modernization, retalned earnings and mergers. HIany othertvpes of direct and 4ndirect incentives for indtustry exist, includin5z sub-sidized short-term loans in the form of "directed" credits. The creditnn1ic-iPe have encouraged Tsraeli firms to maintain relatively hiph debt toequity ratios.

12. In addition to incentives, the Government has provided industrywith high protection against competitive imports. At the beg,inning of 196,Rthe average nominal tariff was about 80 percent, the average effective tariffa;out 150I percent. The range of protection raned from. a rate of IE 5.5 on

ANN LXPage 5

basic metals to It 10.0 on textiles. Tariffs were slightly reduced in 1968and 196'?, hut were increased again by the 20 percent surcharge in 1970. How-ever, as the surcharge was imposed on virtually all imports (excluding rawdiamonds) the disparities in the protection were relatively reduced. Al-though recent measures have tended to raise the cost of importing, the Govern-ment aims under its import liberalization policy at eliminating all tariffdistortions.

13. The incentives and support provided by the Government have permittedthe industrial sector to obtain relatively high profits by internationalstandards. In 1968, lpre-tax profits represented an average of 30 percent onequity capital for a sample of 200 companies, and this profitability hasapparenitly fallen off only sliglhtly in the past two years. There may thus besome lal:itude for import liberalization and more discriminating incentiveswithout jeopardizing reasonable profitability. Government policies havesometimes been insufficiently selective and have resulted in some inefficiencywithin industrial branches. Moreover, their cost to the economy is difficultto assess. Nevertheless the broad array of incentives and protection haveserved government objectives with respect to changes in structure and theerowth nattprn of the industrial sector.

14. Sma11 npant size. fraemented production. and family ownershin ofmost enterprises, in part an outgrowth of the limited size of the localmarket and deliberatelv restricted competition, are characteristic deficien-cies in the structure of the industrial sector. To correct these deficienciesthe Government offprs financinp and tax Incentives; and is lowerine an(dlevelling tariffs to encourage integration, investment in larger production

Enitcz- 7nf mnre Pffir*-fnt nrndetiron - The qiirreo.c nf thpep mpacisrpe ic

evidenced by an absolute drop in the number of industrial establishments, in-cludin, the c:!osing oF some fair-sized textile -!ants, then merger of companies,the integration of facilities and processes, and changes in the make-up ofindustri]a output.

ANNEXPage 6

Table I: Major Branch Shares of Industry(percentages)

Gross Value Added as/a Industrial Establish-Output Percent of Output Exports Employment/b ments(1970) (1970) (1970) (1969/70) (1969/70)

ipining & M-inerals 5.9 54.2 7.8 6.1 5.3Food 18.4 28.2 10.7 14.8 12.5Textiles, Clothino 16.0 31.5 17.0 21.1 21.6Wood, Paper,

Publishing 9.0 37.0 3.1 10.4 17.9Chemicals, Piubber,

Plastics 14.7 27.9 13.0 8.5 6.3Metals,

Mletal Products 9.8 43.9 6.1 12.1 14.6Machinery F.

Electronics 20.3 35.6 7.7 22.0 15.2

Total excl. Diamonds 94.1 34.4 65.4 95.0 93.4

Diamonds 5.9 21.1 34.6 5.0 6.6

Total 100.0 33.6 100.0 100.0 100.0

/a At factor cost./D For establishmenLs withD jive aniI more elployeu persons.

15. The branch composition of industrial investment is also changingin line with government policies. In the decade 1958 to 1967, about onethird of total fixed investment was made in the consolidated chemicals, metalsand electronic branches. Over the 1970-75 period, these branches are ex-pected to account for ahout 60 percent of industrial investment. During1968-1970, investments in the three branches privileged by the Governmentaccounted for about 52 percent of the total. Investments in textiles, cloth-ing and leather manufactures were maintained, mostly for modernization anddevelopment of more sophisticated products. Lower priority was given tomining and quarrying as well as food industries.

ANNEXPage 7

16. Sirnce 196I5, gross inLustrUia±L output (lnciluUdi1ng idaiaiondU pLUcebbsing)

has grown at an average rate of about 11 percent per year, though with wideannual fluctuations. in 1968, following tne two-year recession, outpur itl-creased by 29 percent. Further utilization of idle capacity has brought downthis growth rate. Under conditions of full employment of labor, industrialproduction was estimated to have grown by 11.5 percent in 1971. More effi-cient utilization of physical capacity is still possible. In addition, asa matter of governmenit policy, capital for industry has been and should con-tinue to he available. The principal constraint on future growth is likelyto be labor in terms of both quantity and skills. Shortages of skills maybe particularly felt in view of the development of science based industriesrelated to chemical, metal, electronic products. On the demand side, therecent slowdown in private consumption has been compensated by rises in gov-ernment purchases and exports of industrial, products. The share of industrialoutput destined for investment has remained stable, but, shotuld public con-sumption (especially defense needs) slacken, it might be possible to divertmore resources to the manufacture of investment goods and the expansion ofindustrial exports.

Table J: Indicators of Industrial Development

1970 1961-65 1968 1969 1970(Est.) (Annual change in percent)

Industrial Prodtuction Ih 12.5 million 13.4 28.7 15.9 11.3Employment 234,000 3.3 14.9 10.4 6.5Output per Worker Tb 53,400 9.8 12.0 5.0 4.5Capital Stoclk Ib 6.9 million 11.0 1.7 7.8 10.0Exports US$586.9 million 17.7 24.8 15.8 6.0

17. Industrial exports have grown at a pace faster than industrial out-put. Between 1965 and 1970 the average annual growth rate of exports (exclud-ing diamonds) was 19 percent. In 1971 the increase was estimated at 23 percent.

The most dynamic exports have recently been metal products, optics and elec-tronics whose markets are rapidly expanding. Israel has also developed itssales of knitted p:oods. high fashion wear and leather products which are alsopromising. Among its traditional export commodities, potash and phosphatespnlts related chemical products have shared well in the exDansion. In thespecial case of processed citrus, changes in the market alignment of countriesto which these nroducts are exnorted and the relatively inelastic sunnlv sit-uation in Israel. may curtail further growth. The share of diamonds in indus-trial exnorts *!ecline-1 from 42 nercent in the 1q6 13-16h neriod to an averageof 37 percent between 1969 and 1970. Israel's exports of processed diamondsalready account for a significant nonrtion of the world market.

!NEXP'agE 3

Other Sectors

18. The power sector has growii continuouslv with generation and( salesincreasing at an annual rate of about 13.5 perc ent since 1950, altihougii duri!l;the last five years thle average annual increase hias beeni ornly 10 percenit. i)-stalled capacity rose from 100 MW in 1950 to 1,19'5 MW in 1971. In the sametwenty-year period, 10,500 kmT of lines were addec! to the capacity of the tralis-mission and distribution systeem. IWhile expanding, tlhe Israel lectric Corpur-ation Ltd. a private stock corporation thaL supp)lies all public power, annuallyreduced its electrical losses and improved its load factor. The industry'sprofitability has recently been affected by general economic developflents.Althoughi average revenue rose very slighitly in 1970-71, profits declinedsharply in the face of rapidly rising costs. On June 1, 1971, the Governmentpermitted the corporation to raise its rates by a uniform 11 percent. Thesubsequenit devaluation1 of the Israel pound mnay, however, further endangerfuture profitability and thus justify another tariff revision in the nearfuture.

19. Generation is based mainly upon oil-fired steam, the largest uniitbeing a 214-MW1 steatmi set, wqlhich is large in relation to tlhe total generatingcapacity of the system. A second similar unit is due on line soon. Thereare also two 10 !R4 gas turbines in service. Thermal efficiency, imieasured byfuel oil used per kWh generated, has shown a lon;-terri trend towards improve-ment. Additions to capacity now in hanci include a 2 x 229g; NM steam plant a-cthree gas turbines (2 x 40 MW, 1 x 35 MTW). A furthier development, not vetfinanced but scliecluled to start as sooni as possible, is a new power stationsouth of llaifa comprising initially two units of about 250 MW each. A niucle-ar plant is under considleration for construction sometime in the 1930's.

20. Until very recently tourism in Israel had not given signs of rapiddevelopment. Since 1967, investments in the industry have been carried outmainly to modernize hotels in the hope of future inflows. The overall occu-pancy rate was about 50 percent and the 7 percent increase in tourist entriesin 1970 had been obtained only through major marketin- efforts. For reasonsnot absolutely clear yet, but probably linked with easing of the politicalsituaition, a real hoomn took n1pre in 1(71- Tourist entries increised by 49

percent to total 657,000. The occupancy rate was already 73 percent in April1971.

21. This4c rnT 4zih-l- enxpncion w.as 1rrnra T hennboc _n the trnali-

tional pattern of tourism in Israel. First there were as many tourists fromLI. ur_.n. a; Ts frn, ..X4,.e IT. - .-A -/ats,ich Anowaccut fr 4peretothe to_4±LL ;tJ aaO t;D i Lt,nf ULC LJLLC.t LI L,C1UC.( aW1LX..L Lfl.W aLA.JtsL L.t-|S JtTSW Z >&

tal entries. Second, tourists tended to stay longer at each place visitedwith 'n ILsrae'l andu were more selective in thIer nuinnbeer of pla-ces viied hidwiLUI i- l! dL C UILC J~LA IL LI LUIC ~V.A.j_ -A LC T. -; -7.A

they showed relatively more interest in visiting areas of other than purelyhistorical value. Fourth, non-Jews com, prised an estimated 45 percent of thetourists. The extent to which these developments are indicative of futuretrends is difficult to assess. Nonetheless, they point out thre neeu to co,n-sider new tourism policies and obiectives.

ANNEXPage 9

22. W[hereas initial plans predicted an inflow of 850,000 tourists in1975, it is now expected that this target will be reached as early as 1973.If thiis is the case, hotel capacity may be severely strained, Current invest-meent plans pr1ovide for an increase in rooms from 15,000 in 1971 to 18,600 in1973. This wntild not: be enough witlh respect to both overall availability andlocation. Measures maY therefore have to be taken to increase the number ofprivate rooms by at least an additional 2,500 in order to accommodate the pre-clicted tourist inflow. Such developments assume that tourism will evolvealong t:he lines sketched in 1971, that is toward a tourism of hiolidaymakers,in the Euronean sense. If thlis tVye of tourism develons it will have to com-pete with other lediterranean locations. A precondition for sustained growthi!i toIiri sm semprn to invol ve redicii ng' the rcot of travel1 i ng to TIrae1, whi rhin turn may imply liifting the governiment ban on charter flights, now in ef-fict thVroughi0 1973.

23. Output growlth in theic transportation and commiunications sectoracceler-ated in 1970, attaining a growtlh rate of 12.4 percent in real termsCompnrE!d wiil Y-.2 pe:^cent t!he previous year. Tn 1nd,f-. . . .

hias been attributable chiefly to expanded use of trucking services by themi-ninb- and -- rzo'cuminutis 5-ktnoflrevousofaictr'

products, especially citrus; and the growing use of transport facilities fordefense- need.,. D)omest,tc aXir seArvices increased at thIe -verage rate of rot-. ltof the sector, while internationial transport rose faster, by 16 percent. ThenatiLonaiL aiLrl ine, L-L ILL, Look an increasing part iLn thi.Ls ApCaLnLi, d

share in tourist entries now accounts for about half of the total. Real grossfixed ti vestmS1-nt in transportation and cormmrr,unications declinied U'y abLout ' per-cent in 1970, due primarily to completion of the Ashgelon-lLilat pipeline inFebruary oL tLhat year. Future investment must be high, Lhowever, to overco.-aethe growing problem of undercapacity, especially of port facilities and airterminals.

24. iAlthough leveling off slightly in 1970, construction activity con-tinued its recovery from the 1965-1967 depression. Residential constructionwas Lhait most dynamic, an(I nUw Copr LI ies o-ver hali UoL LIe LLoaI ValUe o new

civilian construction. Nevertheless, the shortage of dwellings is serious.Active speculationl in private iand has contributed to trhe soaring cost ofprivate residential construction. The public sector initiated 28 percentof housing investment in 1970. The Government, wnich hias inauguratec a rive-year pLan of low cos t housing designed primarily to benefit young couples andimmigrants, is handicapped by budget stringencies and by the general shortageof labor. It has consequently tended to place greater reliance on the pri-vate sector. Some immigrants, for example, are diverted from private housingby government lending for mortgages at attractive terms. This arrangementleaves the choice of location to the immigrant, but tends to reduce the pro-portion of new settl,ements in the less-developed regions of Israel.

25. Israel's educational system is designed to produice hiighly trainedprofessiollal nanpower suited to skill-intensive methods of production. Astotal school enrollment has already reached high levels and secondary educa-tion is not free, the slhare of education in government expenditures has

ANNEIXPage 1 (J

declinied steadily over thie last six years. Great importance is attached toincreasing the share in total enrollment of vocational and agricultural second-ary education (currently 45 percent and 6 percent respeCtively) at the expenseof the academic secondary sclhools. There has been an increasee in both ularl-tity anid nuality of post-secondary enrollment.

26. National expenditures on health serviceq rose by 10 percent: during1968-69, wlhile the proportion of non-profit inistitutionis in total expenditures(primarily the Sick Fund of the llistadrut) declinecd from 66.0 pcrcent to 51.6percent. In the followinig year healtlh exp)endi.tUres rose another 14 percentto lb 900 tnillion, the equivalent of Ib 31() per capita. Public sector trans-fers for social welfare, chiefly from the National Insurance Institute. c:rewrapidly during 1970, whereas expenditures by non-profit institutions decreased.dby 15 percent. Ac decline in transfers from abroad. the main source of revenucefor non-profit institutions, explains much of this shlii-t toward public sectorflnanciung of health and welfare.

27= Tn the midst of steadyv higsh level vrowthj Israel f2ces n umbmer ofpressinig social challenges. Against the backiround of a deliberate policy ofat least maintainine a constant slhare of wages and salaries in national in-come, the disparity in incomes is one of the Government's main] concerns. Thledistributioin of incrnme although less s!ewsld in TIsrapl than il most develon-

in( countries, does not follow thie pattern of countries with similar levelsof income. Over tHIe last twenty years, in.nlualitu inrrc,asecl a.s ewid-nredby a rise in Gini ratios (with respect to pre-tax incomle of JeWishL urball fari-iii_c) froTI n .23 in 195() toL 037 in 1(WA- MTnro r'vs.nf lvx inoritc diistrii1it--on

probably has remained stable as a resul-t of increased cash payments and wagesupplem.ments to low income employees. The imp-act otf the tax systern is di ffi-cult to assess. Although the income tax structure is theoretical].y very pro-gressive, 4lt1s relatively na.rrow basse is furthler llmited DIy a nu .,ber of allowances which on. thie whole, favor higlher earning brackets. It lhas been esti-mlated tllat nearly one quarter of the ::rban pop,ul-atlion er noleblwhlof the median disposable income of a Jewish urban family of four persons.AtI[Ju,L less tha[l I t,ercLnt of - 1h 071/79 1-1-ud<,e 4s allocated tilL

welfare, the Government is very concerned about signs of social unrest. Ef-Lorts to eLiL,iLnate povery ad aL anu chieve a mnr,re uiLIUbLe UdtLL.LUULLUIL UL ofln=

corme must, however, be weiglhed against the need to ensure the efficiency ofproduction, includinig incentives to highly productive technical and profes-sional workers.

STATTSTTCAT. TARLES /a

P sD^lsAsafioe.

1 Population by Ptincipal Group and Source 1961-19701..2Q~A Jl% Persons J VAonoL. c - j =70

1.3 Occupational Distribution of EMployed Labor Force1..4 Tibo. IL orce h.-racter 4 LXJ.s-c

1e5 Percent of Income by Population Deciles1.O rersczw 'UUM o ILth awi±SIrrXu L-r.1rJUrIes Emplpoyacu ln Israel,

by Economic Branches and Sub-Districts

National Accounts2.1 Expenditure on Gross National Product, i965-i9702.2 Resources and Uses, 1965-702.3 Sectoral Distri1bution of Net Domestic Product at Gurrent

Factor Cost, 1965-1970204 SectcTal Distribution of Net Domestic Product at 1970 Factor

Cost, 1965-19702.5 Gross Fixed investment by Sector, 1965-19702.6 Gross Fixed Capital Formation by Type of Assets, 1965-19702.7 National and Domestic Savings, l965702.5 Investmen-t and Savings Ratios

Balance of Payments3.1 Balance of Payments, l965-19703.2 Merchandise Exports, 1965-L9703.3 Merchandise Imports, 1965-19703.4 Direction of Trade3.5 Imports and Exports of Services, 1965-19703.6 Transfers and Capital Movements, 1965-19703.7 Net Reserves and Net Foreign Assets, 1968-1970

External Debt4.1 IsraeL External Debt, 1967-June 1971h.2 Estimated Future Service pa,yments on External Debt

Fiscal Statistics

5.1 ConsoLidated Public Sector, 1968-19705.2 Sunmiarv of Central Government Budget- 1966/67-1971/725.3 Current Government Revenue, 1966/67-1971/725.4L Current Government 1;mnenditurej 1966/67-1971/725.5 Govenument Capital Expenditure, 1966/67-1971/725,6 Financinp of fnovArnmnt. Deficit, 1966A67-1971/725.7 Internal Government Debt, 1966-19705,J3 RPvenue and Expenditure of Locnl Aut-horities 1965-19705.'3 Receipts and Expenditures of Non-Profit Institutions, 1965-19''0

/a As of March 1972

Monetary Statistics

6.1 'lleXua y OLLSVy, 1968U-1970V

6.2 Domestic Credit Expansion and Its Counterparts6.3 Foreign Assets ad Liabi ;liee, '96'-19706.4 Claims on Government, 1968-19706., sank aredit to the PuDlic

Agricultural Statisxticu7.1 Volume of Agricultural Production, 1959/60-1969/707.2 Value of Agricultural Production, 1959/60-1969/707.3 Agricultural Production and Final Uses, 1960/61-1969/707.4 inputs in Agriculture, 1959/60-1969/707.5 Direct Subsidies to Agriculture, 1963-19707.6 Gross investment in Agriculture, 1967-19707.7 Cooperative Farming in 1968

Statistics on Other Sectorso.l Industrial indicators, 1961-19708.2 Production Indices, by Major Industrial Branch, 1965-19708.3 Gross Output, Matewials Consumed, and Value Added by

Major Industrial Branch, 1965/66-1969/708.4 Establishments, Employed Persons and Man-Days Worked by

Employees, by Major Branch, 1965/66-1969/708.5 Gross industrial investment by Major Branch, 1968-19708.6 Industrial Production by Ownership8.7 The Israel Electric Corporation Ltd., 1950-1970/718.8 Tourism Indicators, 1965-1970

Prices and Wages9.1 Wholesale and Retail Prices, 1966-19719.2 Consumer Price Index, 1965-19709.3 Average Rise in Prices of Resources and Uses, 1967-19709.4 Israel: Monthly Wage per Employee Post by Economic

Branch, 1968-19719.5 Wages and Labor Productivity, 1965-1970

Table 1.1t POPULATION BY PRDICIPAL GROUP AND SOURCE, 1961-1970

196l l965 1966 1967 15968 1,969 19 70

Average TotaL Population (000) 2,189.9 2,562.6 2,629.2 2,7 5 La 2,806.5 2,879.1 2,958.3Jews 1 ,942.0 2,2:69. 2,323.2 2,362.6 2,)407.6 2,464.5' 2,527.2Ncn-JeVwS 247.9 '292.8 306.0 352.7 3c18.9 414.6 431.0

Rate of Increase of Average 3.4 3.4 2.6 3.3 3.3 2.6 2.7Total. Population over Previous Year (%)

Ehd-of-Year Population (000) 2,234.2 21,598.4 2,657.4 2,776.3 2,841. 1 2,919.1 3,001.4Source of Increase:

NaLtural Increase 412.2 50.0 50.8 47.3 53.2 56.L 59.8Net Invaigration 37.5 22.8 8.2 3.0 11.6 21.9 2:2.5

Rate of Increase of End-of-Year PopulationOver PrevLous Year (%') 2.9 2,3 4.5 2.3 2.7 2.8D-ue to Natural Increase 2.C 1.9 4.3 1.9 2.0 2:.0Due to Ihnigration 0.9 0.4 0.2 0.4 0.7 0.8

Working-Age P?opulation (000) 1,448.3 1,727.4 1,793.5 1,8384,7 1,928.1 1,977.8 2,032.2

Rate of ][ncrease of 'Irking-Age 4.4 3.8 2,.5 4.9 2.6 2.8

Populatiorn ovesr Previous Year (%)

/a Includ:ing East Jerusallem.

'ource: Statist:ical Abstract artd Bank of Israel

Table 1.2 : EMPLOED PERSONS BY EOONOMIC BRANCH. 1968-70

(thouBands of persons)

1968 1969 1970

Agriculture, ForestrS and Fishing 94.3 91.3 84.8Manulfactnring, -nlanel Tinettrv 917-6 226.1 233.3

Electricity and Water 11.6 10.6 11.3onst+uctiorn and Public Works 72-9 75.9 80.:Commerce, Food Service, and Hotels 120.4 125.0 125.0Transport, Storage and C7Jm.-cation 68=) 74.7 72.2Financing and Business Services 44.5 48.5 49.7

Personal and Other Services 73.3 76.4 73.5No,+ Yvnoxim2=3.3-

Total 910.9 945 8

(/ of total)

Agriculture, Forestry and Fishing 10.4 9.7 o.fMLrIUJuUc-.LLrg LUL.L.LL, and LI IrLUt.L.L 2I4.0 2L4.o C24.)

Electricity and Water 1.3 1.1 1.2UonListruction a.±d rubLic Wor'^s 8 8.1 8.3

Commerce, Food Service, and Hotels 13.2 13.3 13.0Transport, Storage and COn -wuicaUtion 7.5 7.9 7.5Financing and Business Services 4.9 5.1 5.2Public Services 22.6 22.7 24.0Personal and Other Services 8.1 8.1 7.7

Total 100.0 100.0 100.0

Source: Statistical Abstract, 1971.

-- 1 1 ~ I,f%T' *Mmr^XThTA T MrCI ~Mnv 1,T!TlrMr).T ^M, LI%.jwTr rvT1nTabIe -.) VsOCCuPAIuN.LUr.U VSiR Du.LVIV Vr OFIJIrLAJ1rgJ

LABuR kiRCuRE

(thousands of persons)

1965 1966 1967 1968 1969 1970

Professional, Scientifi.c, andTechnical 113.3 119.5 117.7 120.4 128.6 147.6

Administrative, Managerial,Executive, and Cleric:al 145.7 142.5 135.8 149.3 159.8 165.8

Traders, Agents, And Salesmen 69.9 74.4 73.1 81.7 79.5 73.2Farmers and Fishermen 108.9 102.1 99,4 96.4 93.5 87.8Transport and CommunicationWorkers 43.8 4:.7 44.3 46.9 50.0 5(.5

Construction Workers, Qarrymenand Miners 84.6 72.2 58.4 66.7 69.0 714.6"

Craftsmen and ProductionProcess Workers 206.6 214.5 191.6 225.4 234.4 235.4

Services, Sport, and Retcreation 99.7 105.5 104.6 116.9 122.2 120.3

Total 879.2 (878.2)- 830.7 910.9 945.8 963@.2

(percent of total)

Professional, Scientifi.c, andTechnical 13.0 13.7 14.3 13.3 13.7 15'.5

Administrative. Managerial,Executive and Clerical 16.7 16.3 16.4 16.5 17.0 17-4

Traders. Agents. and Salesmen 8.o 8.5 8.9 9.1 8.- c77iFarmers and Fishermen 12.5 11.7 12.0 10.7 10.0.rransDort and Communication

Workers 5.0 4.9 5.4 5.2 5.3 5.3Construction Workers, Quarrymen,and Miners 9.7 8.3 7.1 7.4 7.4 7.8

Craftsmen and Pro&uctionProcess Workers 23.7 24.5 23.2 24.9 25.0 214.6

larvirGem Snnrt- And RAerAAtinn u.114 12.1 12.7 12AQ 13.1

Total 100.0 100.0 100.0 100.0 100.0 100.0

/n ,e ,e.LJJibiLJL of eoy,XenU Jur UII-.Ls ytear d± er -LIg1LEiy Irom tnat useCd 21n

Table 1,4 .

Table 1.L : LABOR FORCE CHARACTERISTICS

(thousands of persons)

1965 1966 1967 1968 1969 19?70

Wnrkin5-Age Ponulation 1.727.1 1.793.5 1.838.7 1.928.1 1.977.8 2.032.2

Givilinn TAbor FnrcA 912.1± 9113.1 926.9 969.9 990.1 1 o0L)lMale 659.4 672.1 66h.8 692.6 696.6 703.6Fa nle 253.O 271.3 262.1 277.3 293.5 297.8

Labor Force Particip,tioWn+ Rn -nataJews 53.5 53.2 51.o 51.1 51.0 50.3

,_____ ___,,.Male ffi {(7. 6) (7b,Th) (71 - ) (71 1 (69.8) (6i8 .)Female (31-3) (32.3) (30.1) (31.2) (32.3) (32.0)

Non-JU4. T--9 ),),-7 ),-4 23 13Male (81.3) (77.4) (80-1) (78.0) (75.7) (74.7)

Ferle~~~~~~~~~~~~ r10.0) (905) (8-4) (9 .l) (7-8\ t7 -3)Total 52.8 52.6 50.4 50.3 50.1 49.3

Mae1 e (761 ) (7L,-7) (72-1') (71 Th' ( 7n(),) (7n-L RFemale (29.4) (30.3) (28.6) (28.6) (29.6) (29.7)

Unemployed Job-Seekers 33.2 69.5 96.8 59.0 44.3 38.2of of rClv4ill;an TLabor Foe (-- (7 4) (1-4 ) 1. -I) (4-) (3.Q

R79Q.2 873,9 Q 30.7 90.9 9Q5.H 6oA .

fl .oyeu U ArA-MLIUListLereal Areas - - - 5.0 'I.0 22.0

Total Employed 879.2 873.9 830.7 915.9 957.8 985.2

/a Including East Jerusaiem as OI i968.

1 Ermployees and self-employed

Source: Statistical Abstract and Bank of Israel.

Table 1L.5 : PERC3NT OF INCOME BY POPULATION

DECIL-a

1957/_8 1963/64 1968/69

(Percent of taxable-income/A)

First 1.9 2.1 2.2Second 3.5 3.7 3.6Third 5.0 4.9 4.9Fourth 6.3 6.3 6.oFifth 7.5 7.5 7.3Sixth 9..0 8.8 8.dSeventh 10.6 10.4 10.4Eighth 12.9 12.4 12.8Ninth 16.4 16.2 16.'5Tenth 26.9 27.7 27-5TOTAL 100.0 100.0 100.0Gini Ratio .367 .369 .372

(Percent of income after taxes)

First 2.3 2.6Second 4.3 4.2Third 5.6 5.6Fourth 7.0 6.7Fifth 8.2 7.8Sixth 9.4 9.2Seventh 10.9 10.7Eighth 12.6 12.9Ninth 15.8 15.9Tenth 23.9 24.4TOTAL 100.0 100.0Gini Ratio .323 v334

/A .Ts?wirITh irhan familie onnv! nonplaTtion .standardi7.ed for P,amilv sqi7e uing

"standard adult" method. Deciles are in ascending order of income.1957/58 and 1;(63/64 data are based on Savings Surveysq 196d/69 on Fami1lT

Expenditure Surveys.(h r.rnan Int-'nae less ex etions

Source: Israel, Commission of Enquiry into the Development of Incomesa-nd Rtocinl Tna salltmr (HAhTro.)lg I . -

Table 1.6 A PFRSONS PROM 9'HE ADMITERED fPEPRRITOR1IE PMLTnVr1O N TjTQDAT T

/aBY ECONOMIC BRANCHES AND SUB-DISTRICTS

Construc- Agri- Industry Services Totaltion culture

Jerusalem 5483 192 437 415 6527

Yizre'el Basin 344 127 63 14 548

Haifa 1604 - 380 - 1584

Samaria 246 491 401 - 1138

Northern Sharon 330 503 80 140 1053

Southern Sharon 411 625 916 72 2024

Dan (Tel Aviv environs) 661 209 1627 134 2631

Rehovot 276 613 228 65 1182

The South 640 1185 907 110 2842

Negev 1693 1025 87 36 2841

Tel Aviv 4444 486 1622 554 7106

Nazareth 9 - 2 33 44

Jewish National Fund(afforestation) - 73 - - 73

Eilat 4 - - - 4

Total 16145 5529 6750 1573 29997

/a Weekly average for the period of December 27, 1970 to October 23, 1971.

Tabl 2 EYPhENDrTURE ON GPLnSS NATIONkAT. PPRfT)hT 1965-197r

(in millions of current pounds)

1965 1966 1967 1968 1969 1970

Private Consumption 7,136 7,909 8,113 9,244 10,612 11,681

Public Consumption 2,173 2,627 3,599 4,152 4,956 6,799

Gross Fixed Capital Formation 2,935 2,487 1,987 2,880 3,784 4,575

Change in Stocks 142 118 52 333 125 112

Net EXports of Goods and non factorServices -1,428 -1,171 -1,420 -2,017 -2,683 -3,713

Exports (2,072) (2,419) (2,693) (3,894) (4,392) (4,848)

Imports (3,500) (3,590) (4,113) (5,911) (7,075) (8,561)

Gross Dor-eistic Product at-market prices 10,958 11,970 12,331 14,592 16,794 19,454

Net FaIctor IncomePa.mer.ts 133 158 204 248 324 520

Gross National Product atmarket orices 10.825 11.812 12.127 1434LL 16.L70 18j.93

Indirect taxesr net of Subsidies 1,341 1,442 1,297 1,591 2,:LO5 2,426

Gross National Product atfactor cost 9,484 10,370 10,830 12,753 14,365 16,508

Depreciation 990 1,105 1,190 1,319 1,463 1,793

National _Icome 8,494 9,265 9,640 11,434 12,882 14,715

Source: Bark of Israel. The Mission made adjustments to the official data as follows:(1) export;s and imports of goods ana non factor services where calculate(i atthe official exchange rate instead of the estimated "effective exchange rate";(2) interest pay-ments on external public debt was treated as factor serv cepayments and not as transfers.

Table 2.2: RESOURCES AND USES, 1965-70

1965 1966 1967 1968 1969 1970

(in nimllint.Q of 1970 nniincds)

Gross Domestic Product 13,642 13,836 14,102 16,336 18,175 19,454

Imports of Goods and n.f. Services 4,468 4,490 5,029 6,352 7,267 8,561

(Total Uses=Total Resources) 18,110 18,326 19,131 22,688 25,442 28,015

Private Consumption 8,735 9,006 9,132 10,228 11,334 11,681

Public Consumption 2,887 3,127 4,256 4,635 5,382 6,799

Gross Investment 3,850 3,230 2,516 3,729 4,311 4,687

Exports of Goods and n.f. Services 2,638 2,963 3,227 4,096 4,415 4,848

(increase in perrenvt over~. the previous year)

Grros Domestir Produnt 9.0 1.4 1=9 15.8 11.3 7.n

Imports of Goods and n.f. Services 0.4 0.5 12.0 26.3 14.4 17-8

(Total Uses-Total Resources) 6.8 1.2 4.4 18.6 12.1 10.1

Private Consumption 8.2 3.1 1.4 12.0 10.8 3.0

Public Consumption 10.5 8.3 36.1 8.9 16.1 26.3

Gross Investment 0.5 -16.1 -22.1 48.2 15.6 8.7

Exports of Goods and n.f. Services 7.9 12.3 8.9 26.9 7.8 9.8

So-rce: B -n of Israel

Table 2.3 : SECTORAL DISTRIBUTION OF NET DOMESTIC PRODUCT

AT CURRENT FACTOR OOST, 1965-1970

(in millions of current pounds)

1965 1966 1967 1966 1969 1970

Agriculture, forestry and fishing 703 746 849 903 945 956

Manufacturing, mining and quarrying 2,097 2,100 2,265 2,9y4 3,509 4,205

Construction and public utilities 1,032 92o 799 1,o47 1,391 1,694

- . - ~~~~~~~~~~~~~~~~~~~~~~a/0O Q = I -' 1QTransportation and coimmrnication 7411 8U6 u89 i,O61 1i,183 13

Commerce 848 9149 960 1,090 1,2814 1,451

.r inance;X sura.reit ce U ari & z MLL L 4.) ? 27 ) L vJ4 7))

O-W-LLershl-ip ofL de"Llirr 3 6441 685~ 175 ifo 1

Other non=gover,ment ser^ices 710 815 822 952 1,056 1,206

rGeneral govAPrnTmnnt. and non-profitinstitutions 1,635 2,050 2,212 2,372 2,626 3,170

Errors, omissions and acdjustments -224 -226 -220 -153 -442 -838

Net domestic product at factor cost 8,627 9,423 11, 6 8 13,20 1 5,235

Indirect taxes net of subsidies 1,341 1,442 1,297 1,591 2,105 2,426Depreciation 990 1,105 1,190 1,319 1,483 1,793

Gross domestic produet at marketprices 10,958 11,970 12,331 14,592 167914 19,454

Soource: LCentural DULreau ogj. SWb1S

Table 2t : SAi TORATL DTSTRIBTITN OF NERT nIMF.STTC PRODJCT

AT 1970 FACTOR COST, 1965-1970

-IoAcf b1 AA ImA7 , iOAR -mAO 'I 07r

Agriculture , forestry and fishing 717 755 862 875 909 956

Manufacturing, mining and quarrying 2,593 2,629 2,548 3,279 3,800 4,205

Construction 1,158 1,018 847 1,058 1,321 1,412

Transportation and commrrnuication 905 904 910 1,136 1,230 1,382

General government and privatenon-profit institutions 2,260 2,427 2,656 2,746 2,974 3,170

Ownership of dwellings 835 896 946 983 1,022 1,076

Finance, trade and services 3,087 3,152 3,007 3,260 3,602 3,872

Net domestic product at factor cost./a 11,555 11,781 11,776 13,337 14,858 16,073

/a Before adjustment

Source: Ministry of Finance

Table 2.5 : GROSS FIXED INVESTMENT BY SECTOR, 1965-1970

(in millions of 1970 pounds)

1965 1966 1967 1968 1969 1970

Agriculture 204 179 182 193 205 201(public) (37) ~~~~~(147) 141) 149) (3)32

(private) (167) (147) (141) (149) (167) (169)

Irrigation (public) 93 89 8k 69 47 47

Electric power (public) 125 132 86 106 138 144

Industry and mining 581 404 300 618 819 898t _..Ul .1cN/I- w _%f \5 t -It -I nrl% nrrq {>H.\ /q,I^

JLUU.L )L P 1L V k XJ I U ke. )41 \ W"

(private) (468) (308) (165) (366) (565) (698)

Housing 1,242 1,001 678 788 1,086 1,441(pubiic)- (422) (329) (194) (187) (271) (398)(private) (820) (672) (484) (601) (815) (1,043)

Services 1,465 1,311 1,132 1,564 1,91 1,844,public) (725) (635) (607) (734) (1,017) (782)(private) (740) (676) (525) (530) (674) (1,062)

Total /b 3,710 3,116 2,62 3,33 4b, 4575(Public)- (1,515) (1,313) (1,147) (1,œj) (1,7o5) (1,60J)(private) (2,195) (1,803) (1,315) (1,94t6) (2,L21) (2,972)

/a Initiated by the public sector.

AD Includes public sector companies.

Source: (entral Bureau of Statistics and Bank of Israel.

Table 2.6 : uROSS FIXED CAPITAL F-ORMATION

BY iirn ur AOFL±% SySE-TySu

f , _~ I 1 2 k.11 M._X_uL.LLn u' punds)u

1965 1966 1967 1968 1969 1970

(at current prices)

Equipment 957 798 642 1 201 1,590 1,941fo-nr ,ri T" I I7- 97 100

for electricity 53 59 35 56 50 80for mTn-mfactiuring and mining 228 198 153 3h7 5L6 662for construction 63 23 7 62 73 83for transnort 378 289 225 453 520 636other 175 175 159 211 296 380

Construction 1,97 1689 1,345 1,679 2,194 2,634housing 977 't787 532 65t ~~96 t 1,4non-residential buildings 550 502 402 490 603 654other construction works 451 400 411 531 622 539

Total 2,935 2,487 1,987 2,880 3,784 4h575

(at 1970 prices)

Equipment 1,203 984 774 L,3h7 1,738 1,91_.motor vehicles .LO 150 94 loz 31o 30bships and aircraft lob 55 53 190 91 198machinery and other equipment 879 77i 627 975 1,329 1,L37

Construction 2,507 2,132 1 688 i, 2 440 2 63-housing 1, 1,002 700 Y X

nonresdenialbuildings 698 636 510 58& 0(5 65hother construction 567 494 500 615 687 539

Total 3,710 3,116 2,462 3,338 4,186 4 575

Source: Central Bureau of Statistics and Bank of Israel.

Table 2.7: NATIONAL AND DOMESTIC SAVINGS, 1965-70

(in millions of pounds)

1965 1966 1967 1968 1969 1970

Gross Investment 3,077 2,605 2,039 3,213 3,909 4,687

Fixed Investments (2,935) (2,487) (1,987) (2,880) (3,784) (4,575)

Change in Stocks (142) (118) (52) (333) (125) (112)

Deficit of the balance of paymentson curre!nt account 1,561 1,329 1,624 2,265 3,007 4,233

Gross National Savings 1,516 1,276 415 948 902 454

PublicLa1 : (-58) (-268) (-1,736) (-1,813) (-1,955) (-2,902)

Private (1,574) (1,544) (2,151) (2,761) (2,887) (3,356)

Net Factor Income payments 133 158 204 248 324 520

Public (77) (77) (86) (122) (137) (276)

Pri-Lvatue (56) (U8) (LIU) (16)4 (187) (244)

Gross Domestic Savings 1,6X9 1,434 619 1,196 1,226 974

/a. General government and national institutions, excluding retained savings of publicsector companies.

Source: from Bank of Israel data

Table 2.8: *NVES'l-MEN-T AND SAVLN-GS RATIOS

L7U-) -±7U. L7Uf. -7VU.) ±L7U7 ±L7(f0

ILnvestruent-L asM f D

Fixed 26.8 20.8 16.1 19.7 22.5 23.5

DTomestic qSvings as M of eGnP 15.1 12.n [0n 8.2 7 5 .n

Resource (r,ap ' as A of GDP 13=0 9.8 11)5 138 1(6Kf 19.1

Resource Gap as r of Investment 46.4 L5.0 69.6 62.8 68.6 79.2

National Savings as % of GNP 14.0 10.8 3.4 6.6 5.5 2.4

Gross Private Savings as % of GNP 11.5 13.1 17.1 19.2 17.5 17.7

12 Net imports of goods and non factor services

Source: from Bank of Israel data

Table 3.1 : BALANCE OF PAYMENTS 1965-1970

(in millions of US dollars)

1965 1966 1967 1968 1969 1.970

Exports of goods and services 749 873 949 1199 1349 1457Commoditv exDorts (f .o.b.) (40h) (475) (532) (649) (746) (792)Exports of services (345) (398) (4175 (550) (603j (665)

Imports of goods and services 1269 1318 1481 1847 2218 2676Comm odit,y iJmorts (cri.f.) (79Q) (796) (7WA) (1071) (1272) (1387)

Imports of services (475) (522) (749) (776) (946) (1289)

Deficit on current account -520 -445 -532 -64b -869 -1219Trade efici-t (=390 (=0) (=321) (=200) (=422) ( 6 (-9Net invisibles (-130) (-124) (-332) (-226) (-343) (-624)

Unilaterad transfers 327 292 521 435 459 636T ra-n s fers 4to p riJ.v a te sector/a (211) (194)l (207) (77% (290) (,7 ,)~J~.LVa QU ~ ww / ~ %.7L4j \&WIj1 / I If k(.7SJ \J1.))l

Transfers to public sector /b (116) (98) (314) (158) (169) (263)

Capital movements 270 145 234 157 161 639Foreign direct investment (net) (74) (71) (8) (9) (28) (30)Long and medium term loans (net) (156) (112) (295) (178) (168) (626)Short term capital movements (net) (40) (-38) (-69) (-30) (-35) (-17)

SDR allocation and currencyvaluation adjustments - - -18 - 31 15

Errors and omissions 19 -27 -14 -41 -64 -127

Changes in net foreign reserves(increase +) 96 -35 192 -97 -282 -56

/a Private transfers and German restitution.

A Institutional transfers, German reparations and intergovernmental transfers

~vAmrt %nl,fTrA

Table 3.2 : MERCHANDISE EXPORTS, 1965-1970

(in millions of US dollars)

1965 1966 1967 1965 1969 1970

Agricultural products 86 94 108 112 118 126Ci tlus 7_o 91 8sTOther fruit 4 6 4 5 5Fresh vegetables 1 2 2 3 4 7Flowers . 1 1 2 2 4Cotton 2 4 6 5 7 12Other 8 6 10 8 9 12

Industrial products 320 368 384 480 547 585Polished diamondsl 132 1 ig 1 711 203Mining 28 29 29 32 36 41Food, beverages and tobacco 32 35 37 44 55 61Textiles and clothing 43 45 52 64 81 96Leather, wood and paper products 14 13 16 16 21 22Chemicals, rubber and plastics 36 43 48 57 63 751Machinery and other metal products 18 23 23 44 47 47Electrical and electronical products 1 1 3 6 8Transport equipment 5 4 8 10 7 10Othpr manUfactiir ng 11 10 10 12 13 17

Other exoorts 3 16 28 1 27 22

Exports to administered territories . ' 13 51 67 72

Errors, omissions and adjustments -5 -3 -1 -7 -13 -13

Total 404 475 532 649 746 792

/a Net of returned diamonds

Source: Central Bureau of Statistics and Bank of Israel

Tables 3.3: MERCHANDISE IMPORTS. 196q-1970

(c.i.f. in millions of US dollars)

1965 1966 1967 1968 1969 1970

Consumer goods 83 91 76 111 141 140Food ' 7 33 T -bE -i9Other non-durables 22 23 25 35 36 41Durable goods 26 25 18 38 61 50

Raw materials 557 591 5 755 885 941Inputs for agriculture 34 40 52 51 50 0lInputs for industry 409 430 408 569 669 690

of which: diamonds (97) (125) (126) (162) (193) (154)Construction materia:Ls 18 10 8 16 19 24Feel and lubricants 53 58 55 63 70 70Spare parts, accessories, tools 43 45 33 56 77 90

Investmeint goods 179 140 130 231 287 350For agriculture 5For industry and construction 89 65 49 110 161 186L~U l A~I U iIU 0LWIL7.1An0~ UL'L 4! ±.LLFor transport andu coIw -ranications 66 47 ~ 57 89 79 116of which: ships and aircraft (32) (19) (34) (58) (3D) (66)

For --ies,srvi1ces and oth,erbranches 19 22 19 26 39 41

Imports from administered areas L/ - - 2 13 13 17

Errors, omissions and adjustments3 /b -25 -26 -32 -39 -51J -61

Total 794 796 732 1071 1272 1387

/a Sinai oil included under Fuel and Lubricants./b, Balance of payments adjustments and returned goods.

Source: Central Bureau of Statistics and Bank of Israel

Table3.' DIRCTIOIT OF TRADELaUlJe %J4J±Uj'J I r IL f l&J

(in percent of total trade)

Exports Imports (c.i.f.)1965 1970 1965 1970

Europe 62 49 57 59Common Market (E.C.C.) 22 T T 30Germany (Fed. Rep.) (9) (8) (9) (12)Belgium and Luxembourg (5) (4) (3) (4)Netherlands (9) (5) (4) (5)France (4) (5) (4) (4)Italy (1) (2) (4) (5)

Free Trade Area (E.F.T.A.) 24 17 30 25United Kingdom (12) (10) (20) (16)Switzerland (6) (4) (3) (3)Sweden (2) (1) (1) (2)Other E.F.T.A. (4) (2) (6) (4)

Major Comecon countries 3 2 2 1Other European countries 7 6 1 3

United States 14 18 25 22Other Western Hemisphere countries 3 3 3 4

Hong-Kong 4 4 - -Japan 4 4 2 LIran 1 3 - -Other Asian countries 4 3 2 1

African countries 5 5 3 2

Administered areas - & - 1Others and unclassified 3 3 8 7

Total 100 100 100 100

Source: Central Bureau of Statistics

Table 3.5 : IMPORTS AND EXPORTS OF SERVICES, 1965-1970

(in millions of US dollars)

1965 1966 1967 1968 1969 1970

Exports of services 34 398 417 550 603 66Transportation 1 s 2 hi Tourism 55 59 52 96 86 103Insurance 48 58 61 71 99 116Capital servicing 37 48 55 66 73 53Governiment 20 25 31 33 33 28Other 37 50 52 69 81 88Services to the

administered areas - - 5 15 16 15

ImDorts of services h 70 522 7h9 776 9)h6 1289Transportation 93 1-T7 100 1-h9 137Travel abroad 414 ji9 _1_ 52 66 55Insurance 50 60 68 75 91 112CanntA1 srvicThg 914 107 123 136 151 177Government 147 159 324 295 405 678

of which: defense (110) (116) (283) (2),) (Other 47 44 68 68 79 73Services from theadministered areas - - 22 21 17 29

/ .rl ,.e' L1.U.L:;~LUJI~U -LIL + -ALU U . -- .L4U U1_ -1 d4K/d Fre:lghtK ad insw ar.ce on ir-uorts included in trade balance

II uArce., BNar- of Isr-ael

Table 3.6 s TRANSFERS AND CAPITAL MMVEMENTS. 1965-1970

(in millions of US dollars)

1965 1966 1967 1968 1969 1970

Unrequited transfers (net) 327 292 521 435 459 636To public sector (net) 1T9 ~Ti FT 1bX9-i6

non-profit institutions (46) (45) (47) (54) (56) (61)national institutions (48) (52) (278) (111) (118) (199)government (net) (22) (1) (-11) (-7) (-5) (3)

To private sector (net) 211 194 207 277 290 373personal restitutions /a (113) (110) (123) (143) (138) (201)personal transfers (net) (98) (84) (84) (134) (152) (172)

Foreign direct investment knet) 7)4 7L o 9 2uNet investment by non-residents 92 BE 25 27 -E -CNet investment abroad -18 -11 -17 -18 -18 _24

Long and medium term loans (net) 156 l1 2y9 178 io6 OZ6

r__ _n ___ nr 3eQ 1t1 . _ I no Q^n-UrosUn £XLLoW -1L vUu 4UV4 4 4-L u7,

Development bonds (100) (124) (232) (182) (184) (231)TI=DT(-3 (-I9) (8) (L (6 3)N

United States (92) (67) (58) (59) (104) (386)Other loans (I04). (OR) (166() (15 (125) (9771

C-ross 163 196 169 222 251 271Development bonds (67) (113) (61) (104) (121) (96)TRRD (-) (?) (3) (5) (6) (9)United States (30) (26) (22) (2a) (50) (43)Other (66) (55) (83) (8O) (70! (123)

Short term capital (net) LO -38 -69 -30 -35 -17

Total transfers and capital (net) 597 437 755 592 620 1275

/a Mainly from West Germany; transfers from Austria amount to about $1 million a year.

Source: Bank of Israel

Tnable 1 3.7: NTM 7RSDM ANTD NETVr MVYDrThNT ASSE'TS, 1 6-1 970

(in millions oI US dollars)

Change OverPrevious Year /d

1968 1969 1970 1969 1970

Gold & Foreign Exchange 640 412 449 -228 37Deposits with Foreign Banks 162 267 366 105 9°Gov't; Deposits Abroad 92 50 24 -42 -2bIMF Position 22 - - -22 -GROSS RESERVES 916 729 83/a -187 l1J/Less::

Deposits of Foreign Banks 61 116 135 55 19with Bank of 'Israel (1) (30) (38) (29) (3)with Commercial Banks (60) (86) (97) (26) (1I)

Deposits of Non-Rlesidents 170 210 368 40 158

NET 1ESERVES 685 403 336La -282 -67La

Plus:Clearing Accounts, net 2 1 4 -1 3International and Foreign 23 25 22 2 -3

Institlutions, netLess Liquid Asset;s, net/b 26 22 2 -4 -2?

Minus:Non-Resident Deposits /c 16 27 11 11 -16Gov' t Deposits Abroad 92 50 21 -42 -26,IMF Position - 23 13/a 23 -1a

NET FOREIGN ASSETS 628 351 316 -277 -35

/a The Bank of Israel also includes in 1970 reserves a 10.0T millionincrease in Israells IMF quota, which should be applied to the $12.6 millionuse bv Israel of its credit tranche with IMF.

/b Groqs assets of commercial banks minus their denosits with foreicgn banksreadily available minus less liquid liabilities of commercial banks.

/c Not considered as reserves.

/ Minus sign indicates decrease.

Table 1.1: EXTERNAL DEBT* 1967-JUNE 1971

(in millions of US dollars)

Jiuie1967 1968 1969 1970 1971

Public anci Publicly guaranteed debtLong-Term 1,341.1 1,642.1 1,779.o 2,096.0 2,556.7

PUbIitly is.sued bonds 717.T 79.3 42 1,010.9 1,1lg.iSuppliers 48.5 45.4 48.4 38.8 63.9/4Financial institutions 270.1 280.4 309.9 419.3 4d. o.OIBRD loans 86.1 85.2 85.1 84.1 85,5USA-AIDs 160.0 222.3 245.o 286.o 283.2USA-E]aM/2 54.2 49.2 62.0 80.0 105.4Other 4.4 164.3 144.4 167.9/3 463.6/6

Medium-Term 9.6 6.8 19.2 57.5 -

Suppliers 4.0 7 .2 37 -

Financial institutions 5.6 4.6 7.9 43.5 -

Other - - 11.0 10.8 -

Sub-total 1,350.7 1,648.9 1,798.2 2,153.5 2,556.7

Private Debt 118.1 153.0 197.2 284.0 366.9Long-Term 01.5 267. rM76 73.0 -Medium-Term 36.6 26.3 25.2 50.0 _

Total. 1,468.0 12,81.9 1,995.1 2,437.5 2,923.6

Total Short-Term 77.7 91.6 81.6 154.9 139.0Public cr Publicly guaranteed .7 .2 10.:3 30.3Private 77.0 91.4 71.3 124.6

* For thLe vyars 1965-1970 omitstanding is as of T)RnP,hmbr 31; d-eiiqF-Arsed only

/1 Israeli Sources. Data from creditor sources are as follows:(TT $ TniIons) December 1969: 161.0

December 1970: 154.5i-t -le 1071: 150 C.1

/2 1965-68: Israel sources. 1969, 1970 and June 1971: IBRD External Debt Section.7 efinit+elyr include "Agrcltu+ral Surplus" of $197 . Mi114^n

Includes an unknown amount of medium term Credits from Suppliers.Ini -u4e nf ,nknr-r. -1.."+ of .,e rt ... CredisA f4ror-,. F; r. ncial r stn4. 4. 4-4

7f Incluces an unknown amount of medium term "Other"; also, includes "AgriculturalJUL ~~.LLA~~AS JS. u.LL4~~.,*in ude LgricLL ltura9--;lu,seSll of M15.}rillion..

Source: Compiled from aggregate debt statistics prepared by the Bank of Israel.

External Debt SectionEconomic and Social Data Division

conLomic Prrogram De-parl..en

NON -STAIID AMI

TabLe 1s.2- RFTrMATEr FPITURE SERVICE PAYntTJTS ON FXTERO1AL D'I=T ()UTSTANDM3C EXCLV!DILNG UNLJISBUJRSED AS OF DEcr1fBEl 31, 1970

DF:HT REI'AYABLE N1' FOREIGN C11.9lILNCY

(IN TN'.F't,OF' U.S. DOLL.ARS)

1971 197:2 '97' 19.' 19 7 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985

TO'rAYYlOL :,'".L FO.Rr /lPrinca Ln ?20,1 61 183, 71P '6?,9'!,3 1 6, 12 116,998 130,25',S 1]1), Q;' 1:39,711 196,855 I113,202 142,412 202,577 89,761 86,059 53,505nrt: e:t 9 5,81 7,9 191i 56,G661 .9,35 i,!,l, 9 0,605 50,1,31 'i0,114 79,950 52,818 59,38b 69,708 19,114 15,875 12,3b6

281,310 21:1,112 2!'t,I167, 195,';1:6 16b0,962 179,861: 175,125 1B9,358 276,805 196,020 201,796 272,285 109,175 101,934 65,b91

:YTi':2:. 9.'"' IDEF '2l7 "',(lO 181,181 1218,56 105,296 87,16.2 112,870 103,9)07 127,760 187,122 129,692 139,053 200,132 78,485 88,699 53,C52

Tr:'.,L.t. -t 18',279 1,7,'': 1,6t 1 3 1- ,". I5,(8 Id,1, 1:2 1;6,7(6!i I7,239 77,931 51,013 57,927 68,436 18,';59 15,784 12,3117ctel 2?1, ,-89 188,6175 175,181 11,7,265 12 ,230 157,812 155,671 1l7',999 265,056 180,705 196,980 268,568 97,044 100,483 65,396

.:'.ATE '.tr /J* p_;-- sal 1,1,1391 ll7,(37 311,397 1O,8 6 29,796 17,311? 15,767 11,181 9,733 13,510 3,359 2,445 11,i276 1,360 653

11,17: .,: :'Q 8,'23 7,385 5, 36 1,,663 3,66 7 2,875 2,016 1,805 1, 157 1,272 8355 91 42T t ia ' 56,721 ' 2,637 1:2,1,70 38 1 ?, 35,732 22,0(? 1Y, ;45.I , 16,359 11,719 15,135 I,e816I 3,717 12,131 1,151 4 95

; trr,,aal Et w-th a w aa!--.rit: of over one year..7 I..r'~' r- . goverrn,ent deht arnd private dect pl:llicly Lkiai a:teld FEor reWayment.

- Private non-guaranteed and convertibi lity debt.

lSu rce: bas.e on nrojections nrer' -eel by the Miird try ol Vina,e cf TIsrael.

ECONOMIC 1k1l) S1( [AL DATA DIVISIONt0MNOMlTCr PR(GRAM 11OIARTiI.lJT

MAJiCI) 13, 1972

- - fl-- 5.i.: -f-I --lTD r -L SCiIR ffit A 1 9 19n7(einU&±mi.J rUDrlli onusV, f7poLds7f)

1970(Govermment (Local

1968 1969 1970 and nat. Autho-(tot) (total) (total) Institutions) rities)

Revenue 4,616 5 702 7,123 6 572 &LTaxes 3,932 3 333interest received 239 273 332 332 -

Other 445 520 565 347 218

Carrent Expenditure 6 429 7687 10,025 9 513 a2nD h s e _-4,9c r

Other Public Consumption 1,384 1,756 2,004 1,367 637Subsidies to business 577 6o3 799 799 -Interest paid 563 737 910 820 90Other transfers 1,137 1,391 1,517 1,374 143Intra-sectoral transfers - - - 358 _358

Saving -_lj-1,813 -1,985 -2902 -2,941 39

Capital TDenditure (net) 1,46 1,581 1 963 I,749 214Purchases 5t76 493 7Toans ar.s' Participatin (net 859 i 914 I 1,224 n 1,24.LU Ai dJL DI LJ-L DIMS1 Ik1mult U;7 7A.L4 .L LL4 ±L I cC4

Intra-sectoral transfers - - - 32 -32

Overall Deficit 3,259 3,566 4,865 4,690 175

Financing:Domestic (net) 2,043 2,422 2,528 2,353 175Compulsory Loans 17 25 -Other non-banking sources 805 682 824 749 75Bank of :[srael 954 1,253 894 894 -Other Banking Institutions 116 252 267 167 100''oreign Capital (net) 1216 1144 2,337 2 337Loans Tnnet) 30 '500 1,33- 3

Tan^sfes QI-Q Ll.l. 1 rfrnl. I ^Al.JULU U 4U4 L, vv4

Source: Based on Bank of Israel Data.

Table 5.2: SMIJVARY OF CENrRAL GOVERNMEENT BUDGET, AI966/67-1971/72

(in mil:Lions of pounds)

1966/67 1967/68 196B/69 1969/70 1970/71 1971/72(revised budget)

Current revenue 2,'986 3,273 b,175 4,979 6,346 9,,075

Current expenditure 3,157 4,022 4,792 6,432 8,698 11555

Current deficit 171 749 617 1,453 2,352 2,480

Capital expenditure 1,048 1,098 1,418 1,639 1,459 2,147

Overall deficit 1219 1i347 2,035 32092 3,811 4,627

Domestic borrowing, net 943 1,:196 1,605 2,438 2,031 2,293

Foreign financing, net" 276 651 430 654 1,780 2,334

/a. Fiscal. years f'rom April to March.

Source: Bank cf Israel ancl Ministry of Finance

Table 5.3: CURRENT GOVERNMENT REVENUE, 1966/67-1971/72

(in millions of pounds)

1966/67 1967/68 1968/69 1969670 i970/7i I97 lY'7(iwised bug

Direct Taxes 1,305 1 299 1 668 2 o65 2 632 3 321_ t ,'-7 s>nsc: , h v 51w!t b 7} ) m LA - Xff~

Incomew tax 1,1 V4 ' 471 Prope;rty tax 126 82 150 185 223 25104-1,er Aiwec4- 4' s 16 1 21 29 35 5L

Lndrect Trn r 1,217 1.28' 1.707 2.167 2.729 4.385Custom duties 341 731 2,093Purchlse tax 307 321 473 636 711 990Fuel tax 169 191 207 235 255 380Excisea taxes 147 151 176 200 235 257Other indirect taxes 253 253 300 369 474 665

Other Rsvenue 464 609 o80 747 985Interest 199 29 1u rAmortizationr on gover-lunent 93 14 28L15

loansouhLer rever.-ea c 7172 3 301 -1 L5

_ __ql 2.986 3.273 L.17q . 979 6 .3h 6 9.075

/a Includes revenue from capital budget

Source: Bank of Israt3l and Ministry of Finance

Table .: CURRENr GOVERNMENT EIPENDITURE, 1966/67-1971/72

(in millions of pounds)

1966/67 1967/68 1968/69 1969/70 19 70/71 1971/72-d(revised budget)

Defernse and security 1921 2,395 3551 ,038 6781

Social services g046 2o3Education, culture, religiorL 7:% 72 39; 500 611 :7E2

Soc-ial welfare and /bNatic.nal Insurance 25 306 2814 345 418 483

Health 159 156 132 196 248 254Housing 3 3 3 5 6 19

Economic services Za 96 97 65 104 104 115

General administration 225 227 250 248 272 317

Subs idies 297 400 532 557 842 1>227Price Stabilization 217 277 292 327 477Export promTotion 80 153 240 271 514 770

Interest pay_ents 3L43 407 517 658; 866 1,150Domestic 200 259 339 77 678Foreeigrn 1143 148 178 184 231 472

Transfers to local authorities 68 78 207 205, 281 351

Other 12 3 1L 23 12 101

Total current expenditure 3,157 4292 6 4932 8,698 11,580

/A Defense, police, special budgets, Atomic erLergy commission,75 Inclucling mini.stry of labour, pensLons and compensations;' Ecxcluding subEsidies/7"d Tn Decutnber 15171 1625 million was cut, spread over all ministries except Defense; summary table is r(duced

accordingly.

Source: Bank of Israel and Ministry of Finanlce

Table 5.5: (GOVEIRNMENT CAPITAL EXPENDITURE, 1566/67-1971/72

(in miLLions of pounds)

1966/67 1I67/68 1968/69 1969/7() 1970/71 1971/7b(re-visedi budiget

Agricultural and water deve:Lopment 128 ]Lo6 113 118 105 124

Incdustry 41 1]56 161 261 115 175

Mining, quarrying and oil drilliLng 44 108 141 1()2 51 38

Electric power 17 20 25 :34 21 1

Tourism 18 38 18 18 17 :24

Transport 114 1L38 172 191 179 2:18

Postal services 143 123 117 108 122 1L49

Hos ing 289 130 257 558 670 1,055

Local authorities 11 33 30 46 28 43

Public institutions 59 74 89 113 119 132/a

SpE!cial budgets and reserves 108 1L26 251 63 -- 47

Working: capital 55 29 4 4 1 32

Others 21 17 40 :23 31 19

Frozen development plans - - - 90

Total 1,048 10)98 1,8 1,639 49 2,147

/a Actuaals refer to Special Budgets for national securityTb Includes ,110 millio:n in cuts on frozen development p:Lans in IDcember 1971.7jurce: Ban-k of Israel and Ministry of Finance

Tabl ~5.6: FINANCING OF GOVERNMENT DEFICIT, 1966/67--1971/72

(in millions of pounds)

196S/67 1967/68 1968/69 1969/70 1970/7L 1971/72/_ " -- - -~~~~~~~~ ( revi's'5=-uget )

Domestic borrowp_gross 1 0149 1 437 1 849 2,765 2 1119 2 893

Bankigsysytenm, net/7- 2,013 690National Insurance Institution 1:22 91 125 1o00 412 657Bond issues and other

domestic borrowing 280 666 442 636 ',42 346Compulsory loans 170 171 46 16 775 1,090

Foreign financing, gross~ 571 885 863 12077 2,216 3,055

Repayment of Loans 401 475 6,77 750 824 1 186Domestic 1157 771 -2U _3 25 7e. 37gForeign 295 234 433 423 1436 721

Total net finanin n8 Jp92 ia66h

Domestic -4 , 1, ,o 2,P 2,031 ,Foreign 276 651 430 654 1,780 2,334

/a Includes changes in cash position.,b Not incl]udirig L 315 miLLion budget cuts in December 1971; in the smmary tLbles domestic financing is

reduced accor-dingly.

Source: Bank of Israel and Ministry of Finance

Table 5.7: INTERNAL GOVERNMENT DEB 6, 1966-1970(in miLlions of pounds)

1966 1967 1968 1969 .1970

Treasury notes and bills 147 262 201 234 234

Loans from central bank 236 149 359 705 2,507

Government bonds 550 703 1,233 1,672 2,088

Loans from National Insurance Institute 673 795 886 l,Oll 1,111

Other Loans 803 959 1.265 1,665 2,194

Sub total 2,409 2,868 3,944 5,287 8,134

Compulsory loanas 465 625 785 804 786

Total 2a874 3493 4,729 6.091 8,920

/a Amoumts outstanding at end of March

Source:: Banik of Israel

Tale c.8: REVENUE AND EXPENDITURE OF LOCAL ALTHORITIES, 1.965--1970

(in imillions of pounds)

1965 1966 1967 196E8 1969 1970

Revenue 518 596 645 724 824 909

Taxes 268 301 314 295 303 333

Government transf'ers, net 115 139 164 237 318 358

Othera 135 156 167 192 203 218

Expenditure 690 767 817 889 998 J 116

Currelnt expernditulre 469 572 645 689 762 87(

Capital eixpendituire 221 195 172 200 236 246

Overall defic it, 172 171 172 165 174 20'7

Financing:

Government loans:, net 29 19 14 56 42 32

Banking syster5 net 52 50 107 55 86 100

Other domestic 91 102 51 54 46 75

a Includes trcmsfers, income from property and domestic interest receipts.

SouLrce: Bark of' Israel

Table 5=9: RECEIPTS AND EXPFNDTMTRES OF NON PROFTT

TNSTITUTI0NS/a 1965 -1970

( AA IdIi ? CZof iontvioAiCZ

I 0AA7 A1047 f1 OI 1 10 iln

Receipts 63_) 3 v4 '^ eOwn receipts /b w I 7

~~~~~~~~~~~~~~~~~~~~n _ r_ 'I n nr nZ nA ^.7E - n ^-n ^sTransiers / c 16 u192 23 28 320

Current exp3Iiditure I-L.9 818 89 968 1 og8 1 26

Education 226 265 326 357 1,44 4-4Welfare 89 86 92 98 109 1J 7Others 91 115 114 1o6 126 13r9

Current deficit 87 61 61 34 63 1I.,

2Uital expenditure 130 160 148 177 222 235Health 7 T 7 Education 74 79 80 106 138 1;6WelfAre 11 14 15 15 17 18Others 10 13 13 14 15 6

Overall Deficit 217 221 209 211 285 3i'i

Financing:Foreign transfers 156 146 158 153 178 167Domestic credit 61 75 51 58 107 1159

/a Legally private institutions which however provide public services (health.,educa-tion, welfare) either free or at low fees.

Ab Membership dues and feses, sales of services and goods, and private transfeirs.e From central government.

Source: Banlk of Israel

Table 6.1 : MONETARY SURVEY, 1968-1970

(in millions of pounds)

End of te year _ End o' Juune.LY00 -l5;y 1970- 1970 1.97i

Foreign Assets 3,222 2,661 3,477 2,843 4,053

Claims on Government, net 1,519 2,878 3,852 3,402 5,440Claims (1,561) (2,950) (4,089) (3,642) (5,037)Deposits (-42) (-72) (-237) (-240) (403)

Credit to Private Sector 3,741 4,552 5,622 4,886 6,127

Assets = Liabilities 8,482 10,091 12,951 11,131 1_620Foreign Liabilities 1,024 1,431 2,369 1,617 2,916Money 2,899 2,971 3,386 3,122 3,889

Currency (1,092) (1,130) (1,282) (1,222) (1,439)Annual deposits (1,807) (1,841) (2,104) (1,900) (2,450)

Quasi-Money 4,o62 5,080 6,274 5,583 7,120Time Deposits (3,469) (4,297) (5,361) (4,766) (6,178)Foreign Currency Deposits (593) (783) (913) (817) 1942)

Other, -et 497 609 922 809 1,695

So -A? Rnnl4nk nf TIrnael

Table 6.2: IJOMESTIC CREDIT EXPANSION AND ITS COUNTERPARTS

Change in millions of pounds Change in percent7157Q 197n jilnp lQ?7n/.jiinP lQ71 lqh J Q7 n m.Tn 197n/jimp 97c

Credit to Private Sector 811 1,070 1,241 21.7 23.5 25.4

Claims on Government, net 4359 974 2,038 89.5 33.8 59.9

Total Domestic Credit 2,170 2,o4 3279 41-3 27.5 39.6

Money Supply 72 415 767 2.5 14.0 24.6

Quasi Money 1,018 1,194 1,537 25.1 23.5 27.5

Foreign Assets, net/a 968' 122 89 -44.0 -9.9 -7.3

Others, net 112 313 886

/a Positive sign means decline in net assets.

Source: Bank of Israel.

-ab]e 60 3 ru FORLITh.imX ASO1 ILS AND LIABIELIT± ESI , 19.00_-1970

(inamillion8 o0 pounds)

End of the year End of Junet6hi - 1970 i970

BANK OF ISRAELForeign Assets 2,415 1,549 1,677 2,052

Gold 161 lOU 152 lO6 152Foreign Exchange 2,080 1,284 1,418 1,382 1,685Clearing Accounts 16 15 25 13 16Int. Fin. Inst. 18 23 26 26 30Foreign Inst. 61 68 56 86 123IHF position 79 - - - 47

Foreigi Liabilities 135 352 399 354 598MFf position - 79 44 79 114

Clearing Accounts 11 12 11 8 3Int., Fin. Inst. 3 3 4 5 4Non.-Resident Deposits 121 153 210 157 399Foreign Bank Dbposits - 105 131 106 78

Net Assets 2 280 1,197 1,278 1,314 12454

COMMERCLkL BANKS

Foreigi Assets 807 1.112 1.800 12175 2,001Ye Depsit-sAbroad ;T 3 X"bOthors 241 177 520

Foreini Liabilities 889 1.079 1.970 1,263 2.318No;-Resident Deposits 530 675 1,117Others 359 04 853

Net Assets -82 33 _170 -88 -317

NET FOREIGN ASSETS 2,198 1,230 1 108 1,226 1,137

Source: Bank of Israel

Table 6.4 : CLAIMS ON GOVERNMENT, 1968-1970

(in milliorsof pounds)

End of the year End of June1966 1969 1970 _9_ 1971

Bank of Israel 1,124 2,316 3,180 2,884 4,Li.8

Government Securities 140 162 89 88 45Advances 984 2,154 3,091 2,796 4,073

Commercial Banks 437 634 909 758 919

Government Securities 400 530 668 639 750Advances 22 90 214 92 148Short term loans 15 14 27 27 21

Total 1,561 2,950 4,089 3,642 5,037

Source: Bank of Israel

Tab:le 6.5 BANK CREDIT TO THE PUBLIC / .

(in millions of pounds)

*End of 1969 End of 1970Directed Credit Other Total Directed Credit Other Total

Local Authorities 17 420 437 17 464 481Public Services 7 82 89 - 153 153Credit and Financial Inst. - 343 343 - 522 522National Institutions 128 49 177 125 33 158Agriculture 229 187 416 265 251 516Industry 1,114 701 1,815 1,272 1,023 2,295Construction 4 457 461 2 464 466Commerce 2 451 453 2 498 500Business Services 54 290 344 59 432 491individuals - 359 359 - 528 528Others 7 191 198 - 211 211

p~ Tncludes loans by tfYawad I 3 ank and the Israel Bank of Agriculture.

/'h Includes loans to foreign borrowers.

Source: Bank of Israel

Table 7 .1: V0L,TW OF AGRICULTIURAL PRODUCTION. 1959/60-1969/70

(1r! thousand of tons)

1959/60 1966/67 1967/68 1968/69 1969/70

Cro sRereaLs and pulses for gra n 96,3 3117 230.0 202 i62.6Wheat 41.3 221.6 175.0 155.8 12:.0

P .J , n Qn 5 5. n 48,4, 37-0uDLitL U.C;1 _3 H% I -0 v , 1 a , n 7 __

Inldustria1.L dA Oi"l C.- ops7 360.5

Cotton lint 10.7 28,5 33.0 39.2 3,.3CottorSe 16.9 4 0.o 2 61-0 W

Other 196.1 314.1 271.6 240.5 270.2

Roughage a-nd Straw 1736.5 1741.1 1726.1 1783.L 174 1 .3Vegetables 296.2 342.4 381.5 443.0 47:2.3Potatoes 1.8 03 ,4 07.6 1L-4 .6 137 .1

Melons & Pumpkins 52.0 92.0 94.1 119.9 131.5Citrus 609.6 1082I0 1265.3 1178.1 1261.9

Shamuti (399.7) (625.6) (684.5) (593.3) (677.9)Late Oranges (85.5) (140.4) (219.3) (228.1) (207.6)Grapefruit (74.6) (226.1) (264.8) (263.4) (2814.3)Lemons (19.7) (43.8) (42.9) (36.8) (39.8)Other (30.1) (46.1) (54.8) (56.5) (52.3)

Other fruit 145.4 314.0 275.7 304.8 291.2Other crops na na na na naFlower and garden plants na na na na naOther na na na na na

LivestockMeat 81.4 133.3 139.7 143.0 152.oPoultry (45.7) (89.0) (89.2) (93.5) (lO:L.7)Cattle (25.1) (30.5) (35.2) (34.3) (35.6)Sheep and Goats (4.9) ( 8.0) ( 8.4) ( 8.6) ( 3.4)

MN M\ ~I/.Z f .I

Other meat (5.7) ( >5.8) ( 6.) k o.o) ( 7.1)Milk 350.4 472.6 488.1 502.7 537.7Eggs 55.7 70.1 61.2 60.9 6v5.3Fish 13.9 22,9 24.5 21.9 21.3Miscellaneous Products 0.8 2.5 1.9 1.9 1.7

/a Including Intermediate produce.

Source: Statistical Abstract of Israel various years.

Table 7.2: VALUE OF AGRICULTURAL PRODUCTION, 1959/60 - 1969/70

(in millions of current pounds)

1959/60 1966/67 1967/68 1968/69 1969/70

Crops 381.1 930.4 1004.7 1099.9 1132.4Cereals nnd Plses for grain 20.4 88,3 71.3 6Wheat 9.0 63.4 53.4 48.5 38.4Other cereals & pulses 11.4 24.9 17.9 17.1 9

Industrial nd n1-il C-1r-nps 51.6 I 129 IA a 16 1.0o

Cotton lint (23.0) (64.4) (70.8) (77.6) (76.6)Cotton seed ( 2 ( 9A) (13 A) (15 7) (1A r5

Other (26.0) (46.1) (41.5) (43.6) (48.9)

Roughage, straw & green-manure 4I5.1 67.1 66.o 71.3 73.4Vegetables 48.8 112.2 123.0 148.5 169,5Pota-o e 11.8esOR 22OA P 28. 2.'I

Melons & Pumpkins 7.4 19.7 21.2 27.1 34.0r' - 4- lln~~~~~1C 7 ')I 7 1 '7PO I, IQ .1. Q'-I a

Citrus 10LtSj. I )3 7.A1 382.L4 3)84.L4 3U8.u

Shamuti (66.4) (177.0) (209.2) (187.0) (202.7)T+; > > {nR oA fUz~~~~~~~~~~(~- 7) (AA o) (Q7 -1 N t rr, -

T aw |v -.; ()1r nge - I I )*{/ \v. \V J. *|) k )U .1 J

Grapefruit (14.6) (56.9) (71.8) (73.3) (90.0)T I' 1. '7\ -I-) cn\ fi,4 r\ fir~' 1.\ t-- ,-'\ILer,.Lons (4-7) ~- ')v -13.0) (16.0)) (54 ) (19Y.0)j

Other ( 6.8) (16.5) (19.2) (21.6) (21.0)uOiter fruit 78.7 170.5 170.0 213.1 207.9Other crops 6.5 12.7 16.4 24.2 36.1

Flower and garden plants na na (11.9) (18.1) (28.1)Other nia na ( 4*5) ( G.1) ( 8.0)

Livestock 36'.7 004.4 7505 7[82.4 852.8Meat 146.4 284.1 341.2 352.7 373.3Poultry (71.8) (161.7) (198.3) (205.3) (228.0)Cattle (54.5) (87.4) (102.7) (104.2) (109.2)Sheep and Goats ( 9.3) (21.8) (24.1) (25.2) (28.5)Other meat (10.8) (13.2) (16.1) (18.0) (17.6)Inventory 5.4 13.0 4.1 6.8 10.0M-lk 84.5 166.3 184.3 193.1 211.2Eggs 93.7 154.2 146.5 158.0 171.0Fish 18.7 39.5 45.8 41.8 45.7Miscellaneous products 19.9 27.2 2b.6 30.0 31.6

Total 749.8 1613.8 1755.1 1882.2 1985.2

Source: Statistical Abstract of Israel.

Tahhle 7.3: ARTCIWT.TTMRAL PRODTTTITN ANn FINAT. USES

1960/61 - 1969/70

60/61 66/67 67/68 68/69 69/70

(in milliorsof current pounds)

Tota:L production 865.0 1614.7 1755.2 1882.2 1985.2

Direct consumptionla 388.1 674.9 719.1 805.9 859.0Tntermediate agricultural

piodtucts 124.3 153.9 149.8 160.1 776.1Industry - for processing 200.1 424.0 476.4 476.3 482.0Direct export 144.3 342.2 401.5 430.8 468.1.Miscellaneouis 8.2 19.7 8.4 9.1 -

(Ln millior cf 1969/70 pounds)

Total. productiorl/ 1074.0 1860.7 1820.4 1893.9 1985.2

Direct consumption 482.1 751.7 746.4 810.5 859.oIntermediate agricultural

products 154.7 171.2 154.7 161.0 176.1Industry - for processing 248.1 474.1 493.3 479.2 482 0Direct export 179.4 382.1 416.9 433.7 468.1Miscellaneous 9,7 21.6 9.1 9.5 -

/a Agricultural products used for further processing in agriculture;includes change in livestock inventory.

lb Derived from 1967/68 based index of production and proportionaldistribution of production in current prices.

Table 7.4: INPTTS IN AGRICULTURE. 1959/60 - 1969/70

(in milliontof 1969/70 pounds)/a

1959/60 1967/68 1968/69 1969/70

Feeding stuffs 219.6 305.1 307.9 343.2llater 55.4 64 3 60=1 51 IPacking Materials 58.3 103.7 81.2 91.0F'Prtillzers 30.3 39.9 39.5 42.9Transport 43.3 56.9 55.2 60.1Spnre nort±.q repairs nnd too1 22.4 -8.7 ),,f7 ,9.7Fuel, lubricants and electricity 11.6 22.7 22.9 23.4Plant. nnd Anirmnl Protectln

Materials 21.6 43.2 44.9 50.5Gover.,unent 1I4.4 Io. 1.0 19.0

Imported Seeds and Seed cleaning 28.8 4.6 5.1 5.9Services, Miscellaneous 9.2 21.4 22.) ) 3.5

Miscellaneous expenses 5.1 17.5 18.2 18.2

Total pwrchase from other

sectors 520.0 746.4 725.4 791.6

Depreciation 81.8 140.9 1) |3.a9 ]:' -I57

Total 601.8 887.3 869.3 945.3

/a Derived irojmri 196u/6uf 7Uex, ±dIx 1ro Agi1--u LU.Lt-1r -uI -uatq±, qsPrae <e series.

Tn-Ia 7 [ ). ' TRFPT qT.qT])TPT TO AGRITGfTTr.TTURF 1963-197n

1963 1967 1968 1]969 1970

Eggs 20,15 20,9740 22,672tL 21,5542 21,9C

Poultry 4,628 7,551 4,968 6,408 8,965Miik 26,700 24,90, 35,351 42,460 44,356Chee se 200Beef meat 3,312 4,°35 6,832 1,69, 2,174Cotton 10,600 4,725 - _ _Vegetables & Potatoes 14,610 5,280 U ,55 LI,199 2,738Ground nut 400 2,650 2,400 600 200Fruits 949 2,700 4,Ow 3,152 3,41oOlive- 29 300 250 220 300Wine grapes ._ 1,150 i,200 i ,975 1,460Fish 600 540 750 650 602Tobac co 1,644 700 700 700 700Carp<; 655 - 826 1,155 1,206Flowe rs 60 - - 200 -

Wbeat 1,500 8,200 12,800 9,100 7,100Sugarbeets - b,000 7,050 3,000 3,000Seed - 16,000 10,000 10,000 7,800Bran _ 2,000 1,500 2,200 850Mulsca _ 600 475 - -

Other 765 216 - - -

'Sub-total 86,807 108,492 113,929 109,169 109,783

Fodder (-) 180 16,655 13,609 12,258 12,831Chemical Fertilizer 3,935 2,885 4,050 4,574 i1 ,695Vrater 1,800 13,200 17,000 19,000 21,000

'Sub-total 5,555 32,740 34,659 35,832 38,526

Total 92,362 141,232 148,588 145,001 148,309

Source: Bank of Israel

Table 7.6: GROSS INVESTMENT IN AGRICULTURE, 1967-1970

-I 04 7 I OAR 196° OA' - 07

m-...illio.O,oP current poxids).4±1 I1 -L L4AI U - .'IL iIL J LIA

L'ad r-eclam.ation C- draina8 11. 11.0 ' 12. 1.

Orchards 30.6 24.6 20.4 20.9r., s _ 7 r i7 '7f. .2res-Ubfiy k *J C f .) J - -L 14.

Other capital 32.8 33.7 35.2 49.6Agr-i-cu'taal machinery 5. 6.2 89.7 9'.5

Change in livestock inventory 13.0 4.1 6.8 9.2

Sub-total 176.8 168.9 182.8 196.6

Water projects 66.1 58.4 42.2 49.6

Total 231.0 227.3 225.0 246.2

.L)yUU 7 L7 IV

(in miTliorr of 1970 pounds)

Land reclamation and drainage 11.3 11.7 12.8 11.0Orchards 33.8 27.1 22.2 20.9Forestry 28.2 28.5 19.3 14.4Other Capital 39.6 37.9 39.4 49.6

Agricultural machinery 63.0 79.3 100.5 91.5Change in lives ock inventory 13.0 4.1 6.8 9.2

Sub-total 18o8.9 18. 6 201.0 a19 .

Water Projects 81.9 67.4 47.2 49.6

Total 270.8 256.0 248o.2 246.2= == 3n=_ S==== =:=== 3==

Sources: Agriculture in Israel 1948/49 - 1968/69 Annual ReportsBank of Israel.

Table 7.7: C3OPERATIVE F-RMING TIN 1568

Villages _Population Cultivated land Irrigated Land Agriculturpl

Units 1 percent 1000 2rcent 1000 percenxt 11OO na. prcent Percent

Nosh.avir. 3"59 1. 122 35n) o4 25. A, . E3 3'63

Kibutztm 223 :9 84 :24.5 137 33. 5 61S,5 35.0 32.8

Mo sh.avimShitufiim 25 3 5 1.5 9 2 4.2 2.4 2.7

rotal Coop Fa9min 597 77 211 .61 250 61 130.' 74 74.5

Privaite F arming 173 23 131 39 158 39 1569.' 26 25.5

Tot;al 770 100 342 100 4o8 100 1770.0 100 100Z=m.-w=: mm = w===e == mm- -XX:= CMzZ= ZZ:Q ==:= Z===

Souarce: A,Rokach an. J.J Shate2.). F,-7-tion Cl.nrges in the $L+. ar& a2Mern oCooDerative Farmtag in Tsrael. Jerusalem, 1970.

Table -I . TUT)TrTITT TmIMTrl.rPnS 1-6I1Q.-1Q70

Annual change in percent

AverageI 96i1/6 -I6 n4 -t n4- n r%4 ,0 -/a 17

Industrial output 13.4 1.3 -3.]Zb 28.7 15.9 11.3

Number of workers 3.3 -1.9 -5.4 14.9 10.4 6-5

Real investment 6.0L -25.3 -22.4 87.6 36.0 10.0

Real gross capital stockd 11.0 6.2 2.4 1.7 7.8 10.0

Output per worker 9.8 3.4 2.4 12.0 5.O 45

Output per unit of capital 2.2 -4.5 -5.4 26.5 7.5 1l2

Factor productivity 7.0 0.0 2.4 19.1 6.6 3.4s

Daily nominal wage per worker 16.2 15.0 2.1 4.9 4.8 10.5

Domestic market prices 5.0 4.8 1.2 2.3 2.1 7.1

Daily nominal wages per worker/in.xIUtA Uo doUII.,,estLi MaU-:kIr.er

prices of output 10.7 9.7 0.9 2.5 2.6 3.1

Real Wage per worker/outputper worker 0.1 3.1 -1.5 -8.5 -2.3

Turnover, at constanti prices JJ4C.8 0.3 -0.7 27.9 15.9 8,1

Exports ($ lob) 17.7 18.9 3e2 24.8 15.8 60

Industrial export prices - 5.7 -. 0 -i.5 4.8 -0,7

/a As of 1969 data on output, wages, prices, and exports were reclassifiedand based on a new sample.

/b Calendai year; in contrast to industrial survey data, which relate to thefiscal year.

/c ANerage for 1962/65.

/d At the beginning of the year.

Source: Central Bureau of Statistics.

Table 8.2: PRODUCTION INDICES, BY MAJOR INDUSTRIAL BRANC/a _965/197()

1965/1970 1969/1970(base: 19 = 100) T77s3e:797

1965 1966 1967 1968 1969 197'0 1969 :1970

Mining, Ouarrying 314 331 313 371. 390 46)4 10o5 1L25Food, Beverages, Tobacco 172 183 193 220 238 251 1LO8 .114Textile 271 285 268 345 397 445 :115 :129Clothing, Made-up Textile 264 272 268 348 365, 40i7 L05 117Leather & Leather Products 190 183 162' 199 21', 225' :Lo8 113Wood &. Wood Products 299 306 285 403 435 459 L08 1114Paper & Paper Products 250 265 29 3 350 368 396 105 L13Printing, Publishing 220 242 285 323 371 375 L15 L16Rubber, Plastic Products 301 312 310 448 538 618 :120 :138Chemical, Oil Products 261 287 301. 384 426 495 :Lll :29Non-metallic minerals 207 193 144) 182 20)4 223 :112 126Basic Metals 261 242 202 294 365> 356 :124 121Metal Products 219 210 1759 246 295' 317 :120 129Machinery 247 224 198 2751 346 410 124 :147Electrical & Electronical Enuipment 306 291 246 421. 623 669 :148 159Transport Equipment 229 204 202 28'5 365, 467 :L28 :164Di.amonds 335 373 35C) 426 4"43 43'5 :l04 :102Miscellaneous 242 223 2)48 333 420 443 :126 133

Total 241.7 245.1 237.4 305.6 35L).2 394.2 L15.9? 128.2

/a. Index of industrial p:roduction is based on the added value

'ource!: Central B3ureaa o.L: StaListics.

TabDle !3.3: GBQSS OUTPUT M~TERIALS CONSUTHED AND VALUE ADDED BY MAJO?R UNDUS'TRIAL BRANCH /a

1965/66 -.1965/70

(in rn-Liihonsof pounds, at market prices)

Gross Materials Value Percentage Gross Materials Value PercentageOutput Consumed Added Value Outiput; Consuned Added Value1965/66 1965/66 1965/66 Added 1Q69/70 1969/70 1969/70 Added

Mining & Ouarrying 170.0 51.7 118.4 69.6 220.0 61.0 161.0 73.2Food, Beverages & Tobacco 1,318.2 90G0.5 417.7 31.7 2, 010.,0 1,290.0 719.9 35.8Textiles 674.5 400.4 274.1 40.6 965-.5 5t57.4 408.1 42.2Cloth-ing &; Made-up Textiles 170.6 108.7 61.8 36.2 289,,7 186.9 162.8 35.5Leather & LealSther Products 80.2 47.3 32.8 40.3 103,9 62 .3 41.6 40o.0Wood 8 Wood Products 319.5 185.5 134.1 41.9 329.2 1'78.2 151.0 45.8Pazper & Paper Products 12,4.6 69.3 55.0 44.1 209.,3 1:L6.5 92.8 44.3Printing &c Publishing 165.9 65.2 100.7 60.6 246,.4 95.5 150.9 61.2Rubber & Plastic Products 204.8 101,8 103.1 50e3 408,!5 19'8.9 209.6 51.3Chemicals & O il Products 315.6 161.8 189.8 60.1 590,5 299.4- 291.1 49.3Non-Metallic Mineral Products 367.8 L-46.3 221.5 60.,2 394.,6 137.8 256.8 65.1Basic Metazls 179.7 93.2 86.4 48.1 338.5 170.6 168.9 49.2Metal Products 367.7 192.7 174.9 47.6 747,.4 383.7 363.7 48.7Machinery 276.2 11.4 164.8 60.0 496,.5 212.5 284.1 57.2Electrica:L & Electronic Equip. 227.7 117.3 l1lC.5 48.5, 625.2 273.0 352.2 56.3Transport Equipment 416.5 177.1 239.4 57 .5 441.1 171.5 269.5 61.1Diamonds 293.2 224.5 68.7 23.4 562.9 430.7 132.2 23.5MisceLlaneous 56.0 24.4 31.7 56.6 105,9 50.8 55.1 52.0

Total 5,764.7 3,179.4 2,585.3 44.59 9,088,1 4,876.7 4,211.4 46.3=== = ==.==== =====_= ======= ==== =.===== ======= ~~ ====== = ==

/a For establishments with five and more employed persons.

Source: Central Bureau of Statistics.

Table 8.4: ESTABLISHMENTS, Ev[PLONED PERSONS ILND MAN-])AYS !VOPTIED ]BY

EMPLOYEES, BY MAJOR BRANCH,/a 1965/66 - 1L969/70

Man-days iv rkecd by Total Emp loyedEmployeies Thereof Employees Persons Establishments

197,7797 1969-7W 17I7770 6799-177

Mining & ouarrying 1.0 1.1 3.9 4.1 3.9 4.1 83 71Foocl, Beverages & Tobacco 6.8 7'.7 26.8 29.7 27.9 30.5 1,006 716Textiles 7.8 24 5 29.0 25.1 29.3 559 495Clothing1 & M!.ade-up Textiles 2.1 2.6 8.3 9.9 9.1 10.5 528 526Leather and its Products 1.0 0.9 3.8 3.4 4.2 3.7 302 216Wooci & :its Products 3.1 2.3 :L2.0 8.6 13.0 9.6 809 516

Paper & its Products o. 1.0 3.1 3.7 3.3 3.8 124 112Printingq & Publishing 2.0 2.2 7.2 7.8 7.5 8.1 363 402

Rubber & Plastic Products 1.6 2.1 6.o 7.6 6.1 8.4 196 190Chemica:L & Oil Products 2.2 2.4 8.2 9.1 8.3 9.2 2C03 170Non--metallic Mineral Products 2.9 2.3 L0.8 8.1 11.1 8.L 358 235Basic Metal 1.1 1.4 4.0 5.2 4.0 5.3 75 91Metal Products 4.0 4.8 L5.5 18.5 16.2 19.5 718 746Machinery 2. 1 3.0 9.4 11.8 9.7 12.2 367 322Electrical & Electronic Equipment 2.1 3.5 8.1 13.5 8.3 13.8 281 225Transport Equipment 5.4 3.8 20.5 15.2 21.3 15.3 682 91Diamonds 1.8 2.6 6.9 9.7 7.2 10.2 288 379Miscellaneous 0.7 1.0 2.8 3.8 3.0 L.l 223 231

Total 47.5 52.4 181.8 198.6 189.2 205.9 7,165 5,733

/a Establishments with 5 and more employed persons.

Source: Central Bureau; o Statistics.

TABLE 8.5: GROSS INDUSTRIAL INVESTMENT BY MAJOR BRANCH, 1968/70~~~~~~~~~~~ki t l L.l.lions ofL poL-.ds1

968R 196A 1970 1968 1QAQ 1Q70

(current prices) (1969 prices)Mlning anud quarrying 64.9 55.8 48.0 68.3 55.8 43,3

- --~~~~~~~~~~~~~i , n l , - ' 0,.-Food, beverages & tobacco .0 72.2 8.6 54.3 72.2 80.0

Textiles, clothing and made-uptextiles 81.6 101.1 116.3 85.8 101.1 105.0

Vkbod and wood products 12.2 22.2 22.2 12.8 22.2 20.0

Paper and paper products

Printing and publishing 17.4 41.0 60.0 18.3 41.0 54.1

Leather and its produclts 2.7 5.4 8.0 2.8 5.4 7.2

Rubber and plastic products 35.3 40.9 51.5 37.1 40.9 46.5

Chemical and oil products 39.0 98.8 63.0 41.0 98.8 57.0

Non-metallic mineral products 12.2 14.7 34.8 12.8 14.7 12.2

Basic met,al and metal products 16.9 21.9 21.5 1.7.8 21.9 :L9.4

Machinery 90.5 130.4 188.0 95.2 130.4 169.6

Electrical and electronic ecuipment 20.6 25.9 39.9 21.7 25.9 136.0

Transport. equipment 18.5 27.1 61.5 19.5 27.1 55.5

Diamonds and miscellaneous 6.3 11.2 12.0 6.6 11L2 1n08

T'otal 469.7 668.6 815.3 494.0 668.6 735.8Sou ! C-===== ===== ===== ==== ===== =====

Source: CentralL Bureau of' Statistics=

Table 8.6: INDUST1tTIAL PRODUCTION 9Y ONIIERPSHIP-a

(Percent)

19 65/66 1969/70Total Private Histadrut Public Total Private HistadrLFt Public

Flining, Ouarrying :loo.0. 7.1 18.2 37.8 100.0 15.3 18.2 66.5

F'ood, Beverages, Tobacco :100.0 65.2 30.0 4.8 loO.o 65.,4 34.3 0.3

Textiles l.O0 93.9 2.2 3.9 100.,0 90.8 3.2 6.o

Clothing l(O.0 96.o 2.5 1.5 100.0 93.3 6.o o.7

Leather & Leather Prodacts :ioo. C) 91.h 8.6 - 100.,0 92.3 7.7 -

wood F *vood Products 100.0 66.4 32.3 1.3 100,0 55.1 44.6 0.3

Faoer P Paper Products 100.0 ---- 100.0.-- - 100.,0 86.1 13.9

Printing, Publishing 1i0.0 77.0 14.O 9.0 100.0 81.7 4.5 13.8

Rubber, Plastic Produlcts 100C.0 77.3 _ 22.7 ---- 100,0 74.3 25.7 -

Chemical & Oil Products :10.0 62.4 12.8 24.8 100l 0 58.4 12.4 29.2

Non-.ietal:Lic Minerals looCo 52.5 22.2 25.3 100.0 62.9 36.6 °.-5

B,asic Metals :100.0 35.5 _-_ 64.5 ---- 100,0. 53.7 46.3 -

Metal Products 100.0 74.5 16.8 8.7 100l.0 79.0 19.3 1.7

Machinery loc.O 51.5 31.5 17.C' loO,.o 90.5 5.9 3.6

Electrical 1: Electronic Eouipment 100.0 64. 7 2C.8 14.5 100.o 77.6 8.3 14.1

T'ransport Enquipment 100.0 52.6 i.4 29.C 100,.0 51.2 9.1 39,7

Diamonds 100.0 --- 100.0 --- - 100.0 100.0 - -

M',iscellaneous 100.0 C a.o 11.6 4.4 100.0 83.8 10.5 5.7

Total 12o. 69. 8 29. 9 10 0. 3= 100._0 73.C 19. 0 8.80=

/a Industry survey data relatin, ts 7iscal year.

Source: Barnk of Israel.

Table 8.,7: THE TSPDJ EL ELW ..RIC COP'ORA0TION LTD., 1950/70

.1950 1955 1960 196,5 1966 1967 1968/69/a 1969/70 1L970/71

Gene rati on

Installed generating capacity (MW) 1DO 230 410 720 720 1012 1020 1020 1L196Generation (GWH) 543 12',8 2201' 4O61 4461 4632 5460 60'53 6'769Losses (GWH) 79 2:L1 348 611 638 664 7'46 860 917Lossres (% of' generation') ls.5 16.8 15.8 15.0 1L.3 l1.3 13.7 1) .2 IliFue1Consmtption (00() tons) :L93 393 636 1091 1193 1204 1378 1502 1703

Sales and Demand

TotaL Sales (GWH) 1464 10147 1857 3450 3823 3968 4714 5193 5852of' which Inchstsy 1L41 302 669 1210 1270 1259 1595 1754 :1945

- Water irping 117 336 430 840 990 980 1]16 1237 11382Othkers 206 409 758 1400 1563 1729 2003 2202 :2525

Maximumi demand (1MW) 110 242 420 750 792 830 940 10145 1125Load factor (%) 5 6. 4 59.3 59.9 61.8 64,3 63.7 66.3 t_ 66.l/b 68.7LAoNimiber of conswiers (000) 1L81 333 571 792 82B 857 857 888 920

Distr ibut ion

Hv trarnmission and distributionii-nes (kn,) 1801 2982 4770 6826 7174 7507 7239/C 7599 7985

Lv distr-ibution lines (ion) 11367 3030 4565 5468 5632 5704 5867 596S9 6106Distribution transformers (MVA) 214 5,44 992 1728 1898 2035 2212 236S0 2570

T a15017q')calendar ;years; 1968-69/1970-71 financial years ending 31 March.7 Reclassification of consumers reduced nunbers statistically.7@ There is an unexplained discrepancy between the calendar year statistics and

the financial yeaar statistics. For the calendar years 1968-70 inclusiveHv ltrarismission and Lv it:A r Ju-'icn -l shown tc b 7787', 8121, 8552 respective:ly.

SourCce: The Israel Electric Corpor-ation Ltd.

Table 8.8: TOURISM INDICATORSL 1965-1970

1965 1966 1967 1968 1969 1970

Investment 32.4 20.9 22.5 32.2 37.0 47.3(in millions of pounds)

Capacity in rooms at. end year 9.2 n.a. n.a. 13 1 Ii. __

(in thousands)

Occupancy rate n.a. n.a. n.a. 55.7 50.4 50.1

M-A_n4,h+a (4vi v11nninqe 9 3. cO 9, 7 , 1

of which guests from abroad/b (1.9) (2.1) (1-8) (3-4) (3.2) (3-4)

Tourist entries 296.5 328.1 391.2 432.0 409.0 436.9

/a Hotels recommended for tourists

potential immigrants and members of the diplomatic corps.

Source: Minl8itry of ToJu.iLm

Table5'.1 WHOLESALE AND RETAIL PRICES, 1966 - 1971

Consuner Price Index .Wnolesale Price Index.'-

(1969 = 100) (1968 = 100)

Index Percent Increase Index Percent Increase

1966 9)4.0 96.6

1967 olA 1A 7 07 711

1968p07 f 0 1 loO 24.±L7%,jL 7( ' 1 .L%.AJV.\ L 4

1969 ~~~1ff f2 5 1~02 1 0 1-L7'J7 LVJJoJ C.) -LUC . L c*J.

±L7 j'J .l'.'.. U.± .LU'J.) g

4 40 V. 44 ' 1'). n\ I1 tn1971 otu.

/a Of industr:-Lal output.

Table 9.2 : CONSUMER PRICE INDEX, 1965 - 1970

(1964 100) (1969 100)

190) 9you 1907r 19600 yOy 6 1970

Food (excl. vegetables and fruit) 108.6 114.8 118.3 122.0 122.4 lO.2

Vegetables and fruit 108.5 111.4 113.4 112.0 125.0 100.7

Housing 110.2 118.5 116.2 121.7 124.8 112.5

Household Maintenance 108.6 123.7 128.1 131.6 133.7 106,1

Furniture and Household Equipment 103.0 106.5 105.7 103.8 105.9 107,0

Clothing and Footwear 105.1 113.7 116.2 118.3 120.6 102.2

Health 106.9 120.7 126.2 130.6 131.7 106.1

Education, Culture, andEntertainment 106.7 116.7 119.2 121.2 125.3 106.1

Transport and Posts 110.6 122.8 125.6 128.0 129.9 107.5

Miscellaneous.L lo4h3 123.0 124.9 128.9 131.6 107,L:

General Index 107.7 116.3 118.2 120.7 123.7 106.1

/ Cigarettes and tobacco. personal services, and .iewellery and watches.

IP n^le 0 9.A:AVERAGE RITSE r TPI PRT(v, np pnR-qOTJrGE-Sq .hrTn rrF. 1Q67 - 19?4

(prcent )

1967 1968 1969 1970

P-riva.tue Clonsu.,mptivon1. 17 36 68fIX -LVd.U IJUlL~U&IIPjJU.JLi - . I -- -

P-ublic Cor.sumTption 0.7 5.9 2.8 8.6

Gross Capital Foromiation 0.5 6.3 J.3 10.3

Ecports of Goods and n.f. Services 2.3 13.9 4.7 0.5

Total Uses = Total Resources 1.2 5.1 3.8 6.6

Tmncrtq nf rodA nndi n.f. ServiGes 2.3 1>8 4.6 2=7

flross DlmARtin Product 'A 22 3.4 8.2

able 9.4: ISRAEL: MINTHLY WAGE PER EMPLOYEE POST

BY ECONOMIC BRANC /Ha. 1968-1971

( in pounds)

1968 1969 1970 1971 /b

Agricmature. Forestry. Fishing 332 35hI 375 h22Manufacturing, Mining & Industry 574 615 664 745Electricity and Water 866 893 958 982Construction and Public Works 564 588 649 703Commerce. Food Services. and Hotels 533 563 624 670Transport, Storage, Communication 823 887 992 11XFinannial and Thisineas Skrvices 71h 73h 786 81.9Public Services 625 640 690 757PmrRnnAl Sarvinan 395 4?7 439 4925

TOTAT 623 676 7h9

(Percent change from -previous yea:,,)

a5 . a.. W-, Joes ,, *x n 8. .8.n. -

Manufacturing, Mining & Industry 5.6 9.6 14.0G _+4V. + y o,A W1er+g . . 90

Construction and Public Works 7.0 15.2 1000merce, FoodIP --IA U-4- -- A Uotels 6.X 11.J s

Transport, Storage, Commmication 8.9 11.4 20.0Jr .41 ...-A ,dC L -us s OR 21 9

£.LLWL'~L~J. ULJ.. UAJI."~L1000 LJO-L VJ.'r- ve~ L4eL.

Public Services 2.6 7.2 14.06rso0tLl S0.'rvj.ces 4O.5 1.L0 i.O

TOTAL .e y. i.o.u

/a Average. Includes administered area workers in Israel.

/b Average of first five months.

c CBS estimate. Based on rate of increase of first 6 months of 1971 overfirst 6-months of 1970.

Table 9.5 : WAGES AND LABOR PRODUCTIVITY, 1965-1970

(percent change from previous year)

-Average_tv~~~~~~~~~~~~~~~~~~~ , , , At zH n^/a0;O' 19100 i90`7 iou 19yoy 97 Ey/ l) plyu

mo. -TO-ff 'Ig oi 4. 'I *0 1.9 -10.6 -12. 20 O.1 13.

9. Tot--! Ma-n-Rours ofEmployees 2.3 -0.7 -5.8 19.2 10.1 2.9 4.4

3. Gross Hourly Wagesl- § 2) 22.0 16.o 8.1 -7.3 2.2 16.7 9.2

4. National Income 21.4 9.0 4.1 18.8 12.7 15.2 13.4

5. Total Man-Hours ofEmployed Persons 1.4 -0.8 -5.5 16.9 6.7 2.2 3.3

6. Income per Man-Hour(44<) 4L.O 9.7 10.2 1.0 5,4 12.7 9.7

/a Geometric mean.

Source: ]ank of Israel