Debt Presentation State of Israel May 2017 Office of the - PowerPoint PPT Presentation

Debt Presentation State of Israel May 2017 Office of the Accountant General Strictly Private and Confidential Ministry of Finance

Israel ’ s Strong and Improving Credit Profile Reflected in Ratings The three main credit rating agencies have upgraded Israel ’ s foreign currency rating 1 since 2007 A1 (Stable) A+ (Stable) A+ (Stable) “ Israel's well developed institutions and education “ The stable outlook reflects our expectation that the “ Israel ’ s A1 government bond rating and system have led to a diverse and advanced economy. government will maintain stable public finances and stable outlook are underpinned by its resilient Human development and GDP per capita are above continue to tackle structural issues in the economy, and growth model, effective governance and the peer medians, and the business environment that the impact of security risks on the Israeli economy steadily improving debt metrics. ” (August 2016) promotes innovation, particularly among the high- will be contained over the next two years. ” (August 2016) tech sector. ” (November 2016) Aa3 / AA- Apr 2008: Moody ’ s upgrade Israel to A1 A1 / A+ Sep 2011: S&P upgrade Israel to A+ A2 / A Nov 2007: S&P upgrade Israel to A Feb 2008: Fitch Nov 2016: Fitch A3 / A- upgrade Israel to A upgrade Israel to A+ 1996 1999 2002 2005 2008 2011 2014 2017 Moody's S&P Fitch Source: Credit Agencies Reports. 1 Credit rating refers to long-term foreign currency debt only.

Budget Deficit and Financial Needs Comparison Israel ’ s commitment to sound public finances is evident in the government ’ s budget performance 33.2% Financial Needs (% of GDP, 2016) 17.8% 18.5% 18.6% 9.6% 11.1% 12.0% 13.2% 13.8% 14.7% 14.8% 8.9% 8.7% 6.7% 5.7% 5.2% 5.0% 4.7% 3.7% 3.2% 1.7% Budget Deficits (% of GDP, 2010-2018) 5.5% 4.3% 3.9% 3.4% 3.1% 3.1% 3.0% 3.0% 2.9% 2.9% 2.9% 2.7% 2.1% 2.1% 2.0% 2010 2011 2012 2013 2014 2015 2016 2017-2018 Target Actual Source: MOF; IMF Fiscal Monitor, October 2016.

Budget Discipline Has Led a Declining Debt to GDP Ratio The Relative Size of Government Debt Has Been Steadily Trending Downward (% of GDP) 71.1% 69.6% 69.1% 68.4% 67.7% 67.1% 66.9% 66.0% 65.7% 64.8% 63.9% 62.4% 62.2% 60.6% 2010 2011 2012 2013 2014 2015 2016 General Gov. Debt Central Gov. Debt Source: MOF.

Israel ’ s Government Debt: One of Lowest Among OECD Members Israel is one of three OECD members to reduce government debt from pre-financial crisis levels. The charts compare Israel with European sovereigns, rated single A plus or better, and selected other comparators General Government Debt to GDP Change in General Government Debt to GDP (% of GDP, 2016) (percentage points of GDP, 2007-2016) Norway -21.3 Estonia 9.5% Israel -10.9 Luxembourg 22.2% Switzerland -4.8 Norway 27.9% Sweden 4.6 Latvia 35.1% Germany 4.7 Czech Republic 39.8% Estonia 5.8 Sweden 42.7% Poland 8.2 Switzerland 44.7% Czech Republic 12.0 Denmark 45.7% Luxembourg 14.4 Poland 52.4% Denmark 18.4 Slovakia 52.8% Belgium 18.8 Iceland 55.1% Austria 20.1 Israel 62.2% Netherlands 21.1 Netherlands 63.5% Slovakia 22.9 Finland 63.8% Iceland 27.8 Germany 68.2% Latvia 27.9 Ireland 74.6% Finland 29.8 Slovenia 80.0% France Austria 32.7 84.9% United States 44.2 United Kingdom 89.0% United Kingdom 46.8 France 97.1% Ireland 50.7 Belgium 105.8% Slovenia United States 57.3 108.2% -40 -20 0 20 40 60 80 0% 20% 40% 60% 80% 100% 120% Sources: MOF; IMF Fiscal Monitor, October 2016.

Stable and Diversified Investor Base Total Government Debt 1 : USD 193 billion (NIS 741 billion) Tradable Local Currency 60% Foreign Currency 13% Non Tradable Local Currency 27% Other Sovereign CPI Linked 3% Bonds 41% 41% Fixed Rate Bonds 49% Pension Guaranteed Bonds 71% by the USA Org. 37% 19% Insurance 25% Floating Rate 10% Other Source: MOF. 4% 1 As of 31/12/2016 (USDILS: 3.845).

Lower Interest Payments Interest Expenditure by Category Public Debt Interest Expenditure (NIS billions) 4.0% 3.9% 3.8% 7.6 3.6% 3.6% Social Security 7.6 3.3% 3.1% 38.9 38.4 38.3 38.3 37.6 36.3 9.2 Designated Bonds 34.8 9.4 21.5 Government Debt 20.6 2010 2011 2012 2013 2014 2015 2016 2015 2016 Interest Expenditure (NIS Billions) % of GDP Source: MOF.

Government Debt Risk Management Policy  Refinancing risk - The risk that the government will default on its future debt payment obligations  Liquidity risk - The risk that the existing sources of financing are insufficient for funding the State's needs  Market risk - Changes in the government debt and in the interest budget due to changes in market factors  Credit risk - The State's activity in hedging transactions exposes the government to credit risk in the event of insolvency by the counterparty to the transaction

Refinancing Risk Managed With Prudent Financial Planning Average Time to Maturity (years) 8.0 7.8 7.2 7.2 7.5 7.0 6.9 7.4 7.2 7.3 7.1 6.3 7.1 6.9 6.5 6.5 6.6 6.4 6.3 6.3 6.3 6.2 Rollover Ratio 9.4% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total Debt Domestic Debt Foreign Debt Average Time to Maturity vis-à-vis OECD Peers (years, 2016) 14.4 9.5 9.1 8.5 7.4 7.5 7.1 6.7 6.4 6.5 6.5 6.5 6.1 6.1 5.8 5.8 4.9 4.6 3.9 3.2 Czech Republic Hungary Norway Poland United States Korea Turkey Germany Slovenia Italy Spain Slovak Republic Portugal France Japan Israel Belgium Mexico Switzerland United Kingdom Sources: MOF; IMF Fiscal Monitor, October 2016.

Primary Dealership in Governments Bonds The Primary Dealership Program was launched in September 2006. 13 Primary dealers, out of which 6 are foreign banks. Goals:  Supporting and strengthening an efficient market for trade in government bonds  Decreasing cost of funding  Increasing demand for government bonds  Foreign involvement in domestic market  Liquid fixed income market Source: MOF.