Macro Review for the Knesset Finance Committee

Ministry of FinanceJanuary 2012

2011 - Summary

Growth4.8%

Unemployment5.6%

Taxes (NIS billions)211.3

Deficit (GDP percentage points)3.3%

Debt (initial estimate)74%

2

4.2%

-1.0%

1.5%

3.8%4.0%

0.8%

4.8% 4.8%

-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%Growth forecast Actual growth

Growth Forecast versus Actual Growth, 2008-2012

*Central Bureau of Statistics estimate

3

Euro zone 2011 is based on the first 11 months of the year.Israel 2011 is based on the first three quarters.

Global Unemployment Rates2008-2011

9.0

10.1

5.7

4

5

6

7

8

9

10

11

12

US Euro zone (17 countries) Israel

4

4.2%

-4.1%

13.6%

18.8%

-10%

-5%

0%

5%

10%

15%

20%

25%

Investments, 2008-2011

Based on the first three quarters of 2011.

5

Between 2008-2011 investments rose 35%

1.1

0.6

-0.1

0.2

-0.6

-1.1

-0.7

-0.1

-0.8

-1.5

-0.7

1.1

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Tax collection in 2011 totaled NIS 211.3 billioncompared to a budget forecast of NIS 213.5 billion

Gap between Actual Tax Collection and Budget Planning, 2011

6

Deficit Ceiling versus Actual DeficitGDP Percentage Points

1.5%

6.0% 5.5%

3.0%2.1%

5.2%

3.7% 3.3%

-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%Deficit Ceiling Actual Deficit

7

Public DebtGDP Percentage Points

60

65

70

75

80

85

2008 2009 2010 2011*

* Preliminary estimates for 2011 8

Share IndicesJanuary 2011=100

9

* Index of top 50 shares

70

75

80

85

90

95

100

105

110

S&P 500

Tel Aviv 100

Euro Stoxx 50*

S&P Credit RatingIsrael & Western Europe, 2010-2012

CountryCurrent RatingChange in Rating

IsraelA+

AustriaAA+

ItalyBBB+

IrelandBBB+ X4BelgiumAA

UKAAA=GermanyAAA=HollandAAA=GreeceCC X12PortugalBB X5

SpainA

FranceAA+

SwedenAAA=* An arrow indicates an increase or decrease of one notch in the credit rating

10

Responsible Fiscal Policy

Importance:

Economic certainty

Low financing costs (for the government and the business sector)

Fiscal flexibility in a crisis

Credibility of the fiscal policy

Conformance to the expenditure framework according

to the fiscal rule prescribed by law

11

Revised Forecast for 2012

BudgetRevision*

Growth forecast4.0%3.2%

Tax revenues(NIS billions)

232.3221

Deficit (as percentage of GDP)

2.0%3.4%

*Assuming the euro zone does not disintegrate (withdrawal of one country or more) 12