Israel achieves medium overall compliance with international standards and codes, with a score of 48.3 out of 100 in our Standards Compliance Index. Israel's compliance in the area of macroeconomic fundamentals is relatively high. Its observance in the area of market infrastructure is not quite at par yet, but in financial supervision, at least the legal framework exists and in banking supervision, evidence suggest the Bank of Israel is largely compliant with the Basel Core Principles. Israel has declared its intent to adopt the International Financial Reporting Standards in full, effective in 2008. However, it has yet to incorporate the revised International Standards on Auditing into its auditing requirements. In the area of corporate governance, Israel was moving towards enacting a law to bring itself close to the requirements of the Organization for Economic Cooperation and Development, and in the area pf payment systems, its real time gross settlement system was scheduled to be activated in 2007.

Macroeconomic Policy and Data Transparency

Israel subscribed to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) on April 23, 1996 and met all requirements on June 5, 2000. The country is generally in observance of the SDDS, meeting the specifications for coverage, periodicity, timeliness, and the dissemination of advance release calendars. Israel avails itself of one of its two flexibility options for the timeliness of the production index and disseminates the data one week later than prescribed. Overall, data and metadata are readily accessible. The Israeli macroeconomic statistics broadly follow internationally accepted standards and guidelines on concepts and definitions, scope, classification and sectorization, and basis for recording. Macroeconomic statistics in Israel rate highly on accuracy and reliability. Consistency across datasets is broadly adequate, although there still is room to improve monetary statistics. According to a 2006 Article IV Consultation report by the IMF, macroeconomic statistics are of generally high quality and broadly adequate for surveillance, although there are few shortcomings particularly in monetary and government finance statistics. However, most datasets follow the international good practice of providing clear and transparent information about revision schedules and the revisions themselves. More »

Oxford Analytica, in its 2006 report on monetary policy transparency in Israel, stated that Israel's overall score of "Compliance in Progress" remained unchanged from the previous year. In its 2001 report (and subsequent update in 2003), the International Monetary Fund (IMF) assessed the consistency of monetary policy in Israel with the Code of Good Practices on Transparency in Monetary and Financial Policies. The report concluded that Israel 'fully observed' most of the principles in the Monetary and Financial Policy Code, while there were minor shortcomings related to the clarity of roles, responsibility and objectives of monetary policy. According to Oxford Analytica, Israel's commitment to monetary transparency is expected to be highly enhanced with the approval of a new Bank of Israel (BoI) Law which was proposed in 2005. A draft of this new law is being discussed by the Ministry of Finance (MoF) and the BoI, which are negotiating a number of specific provisions, including salary agreements. Once these negotiations are over, the Knesset (parliament) should approve the law quickly, given the apparent absence of opposition. More »

According to the International Monetary Fund (IMF), Israel meets the requirements of the fiscal transparency code in many areas. Oxford Analytica, in its 2006 report on fiscal transparency in Israel, states that Israel's overall score of "Enacted" remained unchanged from the previous year. The main area where further improvements are possible is budgetary preparation and specifically the macroeconomic underpinnings of the budget. Israel subscribes to the Special Data Dissemination Standards (SDDS) and is in full observance of the SDDS's prescriptions for data coverage, periodicity and timeliness, and for the dissemination of advance release calendars. The government's commitment to improving fiscal transparency now includes the area of defense spending. For the first time, the 2007 draft budget contains detailed information on the non-classified parts of the defense budget, making them accessible to the entire Knesset and the general public. The IMF considers that the frequent fiscal policy slippages in the past and the high debt ratio were partly due to a budget debate that is overly focused on the short run and weaknesses in the fiscal policy framework. The government has agreed to explore the possibility of adopting a multi-year budget framework to ensure insulation of future budgets from short-term political pressures. More »

Institutional and market infrastructure

: According to the European Restructuring and Insolvency Guide 2005/2006 prepared by PricewaterhouseCoopers, Israeli law recognizes three main ways of dealing with insolvent companies: (1) a voluntary arrangement between the debtor and its creditors; (2) liquidation; and (3) receivership. All three of the insolvency procedures constitute collective proceedings that are conducted under court supervision and guidance, with particular attention to the priorities established by law, including the principle of equality between creditors of any given class. In some cases, however, the boundaries blur between the three insolvency proceedings. The Israeli courts tend to view optimal debt repayment as the main objective of insolvency proceedings. Accordingly, the courts treat all three approaches as essentially designed to protect the interests of creditors, giving them priority over the interests of the debtor or any third parties such as employees, suppliers or customers. The lack of a comprehensive regulatory framework for the recovery of insolvent companies constitutes a major disadvantage, resulting in uncertainty for the various parties involved. In some cases, however, the absence of legislation turns out to be an advantage, as it allows the courts to apply their own judgment and structure arrangements tailored to the specific circumstances and to market conditions. However, there is no publicly available information regarding Israel's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank. More »

In June 2005, an agreement was reached among the Israel Accounting Standards Board (IsASB), the Institute of Certified Public Accountants in Israel (ICPA), and the Israel Securities Authority (ISA) to adopt International Financial Reporting Standards (IFRSs) in full, in place of national accounting standards, effective in 2008. According to the self-assessment prepared by the ICPA in 2006 as a part of the International Federation of Accountants' (IFAC) Member Body Compliance Program, commencing January 1, 2008 all domestic listed entities will be required to prepare financial statements in accordance with IFRSs. Effective July 1, 2006 all domestic listed companies in Israel are permitted to use IFRSs. Non-listed entities will be subject to the existing Israeli Generally Accepted Accounting Principles (GAAP) which since 1999 have been developed on the basis of IFRSs, however they differ substantially from IFRSs. More »

In August 2004, the Israel Securities Authority (ISA) appointed a committee (named the Goshen Committee) to examine corporate governance in public companies in Israel. Its final recommendations were submitted in December 2006. According to a ISA February 2007 press release, the Committee placed great importance on setting proper corporate governance standards and rules that align themselves with standards adopted in leading western economies. It believes that the best way to implement these principles is through the imposition of disclosure requirements on public companies. The approach to be followed is therefore characterized as implementing the "adopt and disclose" principle, rather than following the "comply or explain" approach. In February 2007, the ISA approved a general draft law, agreed upon with the Ministry of Justice, that defines the level of disclosure which will be obligatory for companies under the Securities Law. The draft is based on the Goshen Committee recommendations. As of May 2007, the draft had not been passed into law. In November 2006, the ISA published a report summarizing the state of corporate governance in Israeli corporate and securities law as measured against the Organization for Economic Development and Cooperation's (OECD) Principles of Corporate Governance. The report indicates that Israel is moving towards compliance with the OECD Principles. More »

The Auditing and Assurance Standards Committee of the Institute of Certified Public Accountants in Israel (ICPA) sets the Israeli auditing standards. According to the self-assessment prepared by the ICPA in 2006 as a part of the International Federation of Accountants' (IFAC) Member Body Compliance Program, auditing standards in Israel are based on the International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB). However, most of the Israeli standards are based on the original versions of ISAs and revisions of ISAs have not been incorporated into the Israeli auditing requirements. More »

The 2005 Report on the Observance of Standards and Codes (ROSC) by the International Monetary Fund (IMF), indicates that overall, current measures in Israel to prevent money laundering/financing of terrorism (ML/FT) are extensive and, for the most part, adequate as a framework for anti money laundering/combating the financing of terrorism (AML/CFT). The report further notes that Israel complies well with the Financial Action Task Force's (FATF) 40+8 Recommendations. The IMF assessment, nevertheless, identified a number of areas where the regime for AML/CFT could be strengthened. Moreover, the IMF report indicated that at the time of the assessment (in 2005) the AML provisions in Israel were only two years old and had yet to be fully implemented. The report recommends that Israel continue to enforce regulations pursuant to the Prohibition on Money Laundering Law (PMLL) and continue improving its anti-money laundering and counterterrorist financing regime through ensuring the diligent reporting of suspicious activities by banks and non-financial institutions. The 2007 U.S. Department of State (DoS) report notes that in 2006 the Government of Israel (GoI) continued to make progress in strengthening its anti-money laundering and terrorist financing regime but nonetheless stressed the need for Israel to continue its aggressive investigation of money laundering activity associated with organized criminal operations and syndicates and its efforts to address the misuse of the international diamond trade to launder money. More »

In 2001 the International Monetary Fund (IMF) conducted an assessment of Israel's payment systems, specifically those operated by the Bank of Israel (BoI). The 2001 assessment found Israel's observance of the Core Principles for Systematically Important Payment Systems (CPSIPS) to be mixed. The 2001 assessment reported that settlement for various clearing processes involved de facto credit risk for the BoI, because the BoI was unable to check the availability of funds at the moment when it officially or unofficially accepted the outcome of the clearing. However, the IMF in a 2003 update of the 2001 assessment indicates that the Comptroller of the BoI has proposed a two-part reform - the adaptation of the existing systems to international core principles; and the establishment of a new Real Time Gross Settlement (RTGS) system. According to the BoI's 2006 Annual Report, preparations for the activation of the RTGS system, to be known as Zahav, continued in 2006 and activation was scheduled for the middle of 2007. The preparations included adjusting the existing systems to updated international standards and as such reducing the risks for the entities using it, especially the BoI. More »

Financial Regulation and Supervision

The 2001 Financial System Stability Assessment (FSSA) concluded that the Bank of Israel (BoI) largely complied with the Basel Core Principles (BCPs) for Effective Banking Supervision. While a 2006 mission by the International Monetary Fund (IMF) did not conduct a reassessment of Israel's compliance with the BCP, the earlier conclusions reached during the FSSA remained consistent with the findings of the 2006 mission. The caliber of the BoI supervisors is generally strong with considerable depth of quality in the department. The BoI provides continuous oversight over the systemically relevant institutions largely in line with best supervisory practices. Nonetheless, the report indicates that the supervisory effectiveness could be strengthened further. According to the IMF, the BoI needs to move towards a more risk-based supervision process based on supervisory principles. The objectives of the BoI are properly aligned toward supervising the five largest institutions. Prudential issues, however, such as the high level of problem loans, the level of provisioning, the relatively low capital levels, and low earnings receive less attention. A risk-based approach focuses supervision on reviewing bank performance against sound risk management practices rather than relying on the resource-intensive review of compliance with prescriptive rules. More »

In 2001, the International Monetary Fund (IMF) found most of the Principles of Securities Regulation, adopted by the International Organization of Securities Commissions (IOSCO) fully implemented by Israel. Some areas of inadequate implementation were found, which have since been partially addressed. However, a 2007 IMF report found that that the supervisory authorities face serious challenges in the rapidly developing financial markets. The ISA does not appear to be operationally independent and lacks sufficient resources for regular on-site visits. The IMF recommended that there is a strong case for enhancing consistency through more formal cooperation among the regulatory institutions. In the 2006 Article IV consultations, the Executive Director for Israel acknowledged the need for the authorities to devise a better supervisory system. More »

According to the International Monetary Fund's (IMF) Financial Sector Assessment Program (FSAP) conducted in 2001 on Israel's adherence to the Insurance Core Principles (ICPs) promulgated by International Association of Insurance Supervisors (IAIS) in 2000, Israel did not observe or observed less than fully some of the principles. In November 2006, as a part of the IAIS ICPs Self-assessment Program, the Ministry of Finance (MoF) completed a self-assessment against the new, revised ICPs promulgated by the IAIS in 2003. According to the self-assessment, Israel observed 22 ICPs and largely observed 6 ICPs. Areas of less than full observance included supervisory cooperation and information sharing, suitability of persons, corporate governance, internal controls, risk management, and derivatives and similar commitments. The Commissioner was expected to finalize regulations on corporate governance which would address some of the weaknesses by the end of 2006. In a 2007 report the IMF noted that the major problems facing regulatory authorities in Israel, including the Capital Markets, Insurance and Savings Division of the MoF, were lack of independence and sufficient powers to ensure compliance with regulatory standards. The IMF stressed that achieving independence of the insurance regulator was a priority. More »

Legend:

Credit Ratings

Moody's Aa1/Stable

Fitch A/Stable

Standard & Poor's A/Positive

Macroeconomic Data

2007 GDP (Current Prices): 161.935 billion USD (IMF)

2007 GDP (Per Capita): 22,475 USD (IMF)

2008 GDP (Growth Forecast): 3% (IMF)

2008 Inflation (CPI): 2.6% (IMF)

2007 Unemployment: 7.6% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 14.301 billion USD (UNCTAD)

FDI (Outward): 14.399 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): N/A million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)