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

Debt Presentation State of Israel

Office of the Accountant General Ministry of Finance

May 2017

Strictly Private and Confidential

1996 1999 2002 2005 2008 2011 2014 2017 Moody's S&P Fitch

A1 (Stable) A+ (Stable) A+ (Stable) “Israel’s A1 government bond rating and stable outlook are underpinned by its resilient growth model, effective governance and steadily improving debt metrics.” (August 2016) “The stable outlook reflects our expectation that the government will maintain stable public finances and continue to tackle structural issues in the economy, and that the impact of security risks on the Israeli economy will be contained over the next two years.” (August 2016) “Israel's well developed institutions and education system have led to a diverse and advanced economy. Human development and GDP per capita are above the peer medians, and the business environment promotes innovation, particularly among the high- tech sector.” (November 2016)

Apr 2008: Moody’s upgrade Israel to A1 Nov 2007: S&P upgrade Israel to A Sep 2011: S&P upgrade Israel to A+ Feb 2008: Fitch upgrade Israel to A

Aa3 / AA- A1 / A+ A2 / A A3 / A-

Nov 2016: Fitch upgrade Israel to A+ Source: Credit Agencies Reports.

1 Credit rating refers to long-term foreign currency debt only.

Israel’s Strong and Improving Credit Profile Reflected in Ratings

The three main credit rating agencies have upgraded Israel’s foreign currency rating1 since 2007

1.7% 3.2% 3.7% 4.7% 5.0% 5.2% 5.7% 6.7% 8.7% 8.9% 9.6% 11.1% 12.0% 13.2% 13.8% 14.7% 14.8% 17.8% 18.5% 18.6% 33.2%

Budget Deficits

(% of GDP, 2010-2018)

Source: MOF; IMF Fiscal Monitor, October 2016.

5.5% 3.0% 2.0% 4.3% 3.0% 2.9% 2.9% 2.9% 3.4% 3.1% 3.9% 3.1% 2.7% 2.1% 2.1%

2010 2011 2012 2013 2014 2015 2016 2017-2018

Target Actual

Israel’s commitment to sound public finances is evident in the government’s budget performance

Budget Deficit and Financial Needs Comparison

Financial Needs

(% of GDP, 2016)

Source: MOF.

71.1% 69.1% 68.4% 66.9% 66.0% 63.9% 62.2% 69.6% 67.7% 67.1% 65.7% 64.8% 62.4% 60.6% 2010 2011 2012 2013 2014 2015 2016

General Gov. Debt Central Gov. Debt

Budget Discipline Has Led a Declining Debt to GDP Ratio

The Relative Size of Government Debt Has Been Steadily Trending Downward

(% of GDP)

108.2% 105.8% 97.1% 89.0% 84.9% 80.0% 74.6% 68.2% 63.8% 63.5% 62.2% 55.1% 52.8% 52.4% 45.7% 44.7% 42.7% 39.8% 35.1% 27.9% 22.2% 9.5% 0% 20% 40% 60% 80% 100% 120% United States Belgium France United Kingdom Austria Slovenia Ireland Germany Finland Netherlands Israel Iceland Slovakia Poland Denmark Switzerland Sweden Czech Republic Latvia Norway Luxembourg Estonia 57.3 50.7 46.8 44.2 32.7 29.8 27.9 27.8 22.9 21.1 20.1 18.8 18.4 14.4 12.0 8.2 5.8 4.7 4.6

• 4.8
• 10.9
• 21.3
• 40
• 20

20 40 60 80 Slovenia Ireland United Kingdom United States France Finland Latvia Iceland Slovakia Netherlands Austria Belgium Denmark Luxembourg Czech Republic Poland Estonia Germany Sweden Switzerland Israel Norway

General Government Debt to GDP Change in General Government Debt to GDP

Israel’s Government Debt: One of Lowest Among OECD Members

Sources: MOF; IMF Fiscal Monitor, October 2016.

(% of GDP, 2016) (percentage points of GDP, 2007-2016)

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

Total Government Debt 1 : USD 193 billion (NIS 741 billion)

Tradable Local Currency 60% Non Tradable Local Currency 27% Foreign Currency 13% Fixed Rate 49% CPI Linked 41% Floating Rate 10% Pension 71% Insurance 25% Other 4% Sovereign Bonds 41%

Bonds Guaranteed by the USA

37% Bonds Org. 19% Other 3%

Source: MOF.

1 As of 31/12/2016 (USDILS: 3.845).

Stable and Diversified Investor Base

Source: MOF.

Public Debt Interest Expenditure

34.8 36.3 38.3 38.4 38.9 38.3 37.6 4.0% 3.9% 3.8% 3.6% 3.6% 3.3% 3.1%

2010 2011 2012 2013 2014 2015 2016 Interest Expenditure (NIS Billions) % of GDP

20.6 9.4 7.6 21.5 9.2 7.6

Government Debt Designated Bonds Social Security 2015 2016

Interest Expenditure by Category

(NIS billions)

Lower Interest Payments

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

14.4 9.5 9.1 8.5 7.5 7.4 7.1 6.7 6.5 6.5 6.5 6.4 6.1 6.1 5.8 5.8 4.9 4.6 3.9 3.2

United Kingdom Switzerland Mexico Belgium Israel Japan France Portugal Slovak Republic Spain Italy Slovenia Germany Turkey Korea United States Poland Norway Hungary Czech Republic 6.5 6.5 6.3 6.4 6.3 6.3 6.6 7.1 7.4 7.3 7.5 8.0 7.8 7.2 7.0 6.9 6.3 6.2 7.2 7.1 6.9 7.2 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total Debt Domestic Debt Foreign Debt

Refinancing Risk Managed With Prudent Financial Planning

Rollover Ratio 9.4%

Average Time to Maturity

(years)

Average Time to Maturity vis-à-vis OECD Peers

(years, 2016)

Sources: MOF; IMF Fiscal Monitor, October 2016.

Primary Dealership in Governments Bonds

Source: MOF.

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