Israel's economic strategy

A year ago, at the 2010 OECD Ministerial Council Meeting, Israel was formally invited to become a member of the OECD, following three years of accession negotiations. Israel duly became the organisation’s 33rd member country a few months later, in September 2010. The OECD Observer asked the minister of finance, Yuval Steinitz, to outline his views on the country’s economic challenges.

OECD Observer: What main economic challenges does Israel now face?
Yuval Steinitz: Our key challenges include the rising competition to Israeli exports, the unsatisfactory performances of the education system and relatively high level of income inequality. The 2011-2012 budget strives to improve education, health and social welfare. In addition, it sets out to promote the high-tech industry, support higher growth and increase the integration of Ultra-orthodox (Haredim) Jews and Israeli Arabs into the workforce. Government expenditure is expected to increase by 2.6% in 2011 and 2012 alike, as dictated by the new fiscal rules.

What attributes would you highlight?
Our focus continues to be on promoting significant economic growth, increasing participation in the labour market, improving education and reducing the income inequality between the centre and periphery. In addition, we are working to develop a long-term and strategic fiscal planning based on:

• education, which is Israel’s long-term growth engine;

• encouraging the Ultra-orthodox and Arabs to participate in the labour market by providing skills and job opportunities;

• promoting business in Israel by cutting red tape and streamlining regulations;

• investing billions of shekels in transport infrastructure, including roads and rail, with a focus on connecting the Galilee and the Negev.

How important has joining the OECD been for Israel and what can membership bring your country?
Becoming a member country of the OECD has already led to economic improvements and enhanced Israel’s economic image, as well as improved the functioning of various sectors in Israel’s society and economy, including environment, education and employment. The improvement and upgrading process is continuing as part of the government’s commitment to ongoing peer review by the organisation and to adjust its regulation policy to OECD standards.

The process of joining the OECD has already encouraged us to adopt a variety of reforms and norms. We are building on the experience of the OECD member countries in forming government policy and implementing reforms, such as on the environment. OECD membership is a driving force for continual improvement of government efficiency through annual reports, peer reviews and the organisation’s wealth of expertise. We plan on taking full advantage of what the OECD has to offer us. The OECD is also a unique forum in which we can discuss national experience and best practices, and find solutions to common problems.

The OECD is celebrating its 50th anniversary. What contribution do you think Israel can make to the organisation in the years ahead?
Israel shares the basic values of an open market economy and democratic pluralism. It ranks among the world’s leading countries with respect to the number of scientists, engineers and high-tech start-ups per capita, as well as in R&D spending per capita. Due to its achievements in information technology, water management, industrial biotechnology and knowledge-based agriculture, Israel can contribute to improving standards of living through innovation. Moreover, we believe our fiscal frameworks–including the new “two-year budget model”–are modern and innovative, and can be examined by other member countries.

We look forward to contributing to OECD working groups on a variety of topics.

How do you see the economic challenges facing the world more widely?
In the short term, downside risks remain a concern. We are particularly concerned with the deterioration of global fiscal positions, the uncertainty related to a premature exit from expansionary fiscal and monetary policies, and the potential for inflation and rise in commodity prices. We are also monitoring the stress remaining in the financial sector and the imbalances in the global economy.

For more on Israel’s invitation to formally join the OECD, see and

To mark Israel’s first anniversary of accession to the OECD, a special focus  on Israel’s economy will be included in OECD Observer No 285, Q2 2011.


©OECD Observer No 284, Q1 2011

(updated 27 July 2011)

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