An overview of the Israel's current economic condition (Essay Sample)

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An overview of the Israel’s current economic condition
By the end of 2012, Israel’s GDP growth level was estimated at 3.2%. The total GDP for 2012 and 2013 was $177.03 billion and $183.04 billion respectively (Israel Country Profile 6). This growth rate is respectable by international standards among the developed economies. However, this rate is slightly low when compared to past GDP rates. This has caused the country’s efforts to struggle when compared to exports from countries such as Europe. The volume of exports as a percentage of GDP for 2012 and 2013 stood at 41.99% and 40.77% respectively (Israel Country Profile 6). Similarly, the volume of imports as a percentage of GDP for 2012 and 2013 stood at 41.12% and 40.11% respectively (Israel Country Profile 19). The forecasts for this rates shows that the percentage volume of exports and imports to GDP will decrease gradually in the coming years.
Israel has a well-developed manufacturing industry and majority of its exports comprise of high technology products (Israel Country Profile 19). The United Nations Conference on Trade and Development’s World Investment Report for 2012 shows the volume of Foreign Direct Investment in 2011 grew by 106% as compared to 2010 results (Israel Country Profile 19). This represents some good recovery from the effects of the financial crisis that threatened most countries in Europe and the Middle East. An Israel-China financial protocol worth $300m enables Israel to export its water technologies to Israel to help in boosting the Chinese agricultural sector. In terms of tourism, the number of tourists visiting the country increased by 13% in 2012. Growth in the tourism sector is expected to strengthen economic performance. Inflation forecasts for 2013 are expected to stand at 1.91% (Israel Country Profile 19). Israel follows prudent fiscal and monetary policies that encourage economic liberalization. The Wall Street Journal’s and Heritage Foundation’s Index of Economic Freedom of 2012 ranked Israel the 48th freest economy. However, its position in the World Bank Doing Business 2013 dropped to 38 out of 185 economies (Israel Country Profile 27). To start a business in Israel, it takes 21 days while the average number of days in OECD countries is 12 days. This rate has an effect on the inflow of FDI.
The government’s attempts to minimize tax rates has led to the imposing of increased taxes. For instance, the government increased the VAT from 16% to 17% in September 2012. People earning in excess of $200,000 incurred a 2% surtax (Israel Country Profile 15). The country’s increasing budget deficits threatens GDP growth. As of November 30, 2012, the country’s deficits as a percentage of GDP was 4.2%. This is equal to an overspending of over $10.19bn. As of December 31, 2011 the CIA World Factbook estimated Israel’s external debt at $102.6Bn and the public debt for the same year was $176.89Bn (CIA: The World Factbook 329). High unemployment has affected economic growth because of economic downtowns. However, the unemployment rate in 2012 was 6.85%, a figure much higher as compared to 13.26% in 2003. Other challenges for economic growth include the escalating tensions in the Middle East, and uncertainty over the government’s budgets, and global economic slowdown. Future economic risks include the likelihood of increased taxes and slowdown in economic growth (Israel: Business Forecast Report 30).
Governance
Since its existence in 1948, the country has enjoyed a strong democratic system despite lacking a written constitution. A number of “basic laws” are responsible for providing guidelines that govern political and civil rights (Country Report: Israel 3). Israeli’s political system can be characterized as a hybrid of the US-style where the executive and legislature are separated and the UK-style political system governed through a parliamentary system (Country Report: Israel 4). Israel is home to several political parties with diverse ideologies. No political party is dominant because both center-left and center-right political parties have once been voted into power in different occasions (Israel Country Profile 16).
The performance of the Israeli government is high. The 2011 World Bank’s report on Worldwide Governance Indicators showed that Israel scored high in effective governance and regulatory quality. Its percentile ranking was 84.4 in terms of government effectiveness. This parameter analyzes aspects such as the quality of the civil service, the quality of public services, credibility and quality of the government’s commitment to policy formulation and implementation, and the degree of government’s independence from political pressures (Israel Country Profile 16). Equally, Israel scored 88.6 in terms of the quality of regulation. This rate was achieved by assessing the ability of the government to formulate and implement policies that encourage development in the private sector.
Despite the existence of the above positive aspects in governance, Israel’s political environment is not exempted from instabilities. The nature of coalition politics in the country has contributed to the increasing cases of ideological conflicts. Most coalition governments have suffered from a number of contentious issues arising from differences in religious and secular positions. Populist and liberal views are also other causes of disagreements among political parties include populist and economic views. The Transparency International’s Corruption Perception Index for 2012 shows that elements of corruption are present in the Israeli system. In terms of transparency, Israel was ranked 39th out of 174 countries (Israel Country Profile 29).
Another major source challenge comes from the recent settlement plan aimed at settling more than 3,000 homes in East Jerusalem and West Bank. According to critics from the United States, European Nations, and Jordan, this move is likely to dampen peace efforts. Political upheavals in Egypt is another great concern for Israel because it threatens to disrupt ties between the two countries.
State society relations
Human development in Israel is very high human development. According to the 2011 UNDP’s Human Developmen...