At the end of March 2012, the IMF delivered its annual report on the Israeli economy. There were probably two key takeaways: –

• The economy would grow by 2.8%, less than official Israeli forecasts but still better than many other countries in the OECD.
• The Israeli government needed to take more immediate and stronger action to involve the orthodox and Arab communities in the economy before they became an intolerable drain on resources.

If you were to rely to the official comments of Prime Minister Netanyahu, who has previously served as Finance Minister, everything would seem rosy. In a interview last week, he observed: –

…we are the only country in the world that was given a higher credit rating in the last year.

Growth is nearly at 5 percent. Unemployment is dropping to its lowest levels in decades, this at a time when the jobless rate in other countries is soaring. There are countries whose unemployment rates for young people reach 5%. Poverty in Israel has been decreasing for years, according to the indices of the Central Bureau of Statistics.

There are far-reaching changes taking place here. We managed to halt the rise in housing prices and to reverse this trend altogether. We managed to enact a policy which grants free education to all children from the age of three, we slashed customs in order to ease the cost of living. These are significant achievements, all at a time of global economic instability.

Significant? Yes. But after all his job is to talk the spin. So that is why I read with interest the comments of Stanley Fischer, one of the leaders in the global financial community and Governor of the Bank of Israel.

As quoted in Hebrew, Fischer’s immediate cause of concern has little to do with social protest or the parallel squeeze on the middle classes – albeit that they must be addressed. Fischer was quite adamant that Israel’s immediate economic problems lie in the bulging defense budget, caused by new threats from Gaza, Lebanon and Iran. With over US$1.5 billion not budgeted, new taxes are called for, today.

As Fischer had stated a few days earlier: “The economy is in good shape, but not great shape.” New taxes with a possible election looming soon? No wonder Netanyahu took his interview in a different direction.

For all that, both Fischer and the IMF agree that given sound economic maintenance, the Israeli economy will be looking at around 4% growth in 2013.