Debt PresentationState of Israel

Office of the Accountant GeneralMinistry of Finance

May 2017Strictly 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 RatingsThe 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 0 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 Rate49%

CPI Linked41%

Floating Rate10%

Pension71%

Insurance25%

Other4%

Sovereign Bonds41%

Bonds Guaranteed

by the USA

37%

Bonds Org.19%

Other3%

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 38.438.9

38.337.6

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

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6.5 6.5

6.3 6.4 6.3 6.3

6.6

7.1

7.4 7.3

7.5

8.07.8

7.27.0 6.9

6.3

6.2

7.2

7.16.9

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 Ratio9.4%

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