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5 - From Deficits to Surpluses: Israel’s Current Account Reversal

from Part I - Government Policy and Macroeconomic Developments

Published online by Cambridge University Press:  04 February 2021

By
Leonardo Leiderman  and
Victor Bahar
Edited by
Avi Ben-Bassat ,
Reuben Gronau  and
Asaf Zussman
Avi Ben-Bassat
Affiliation:
Hebrew University of Jerusalem
Reuben Gronau
Affiliation:
Hebrew University of Jerusalem
Asaf Zussman
Affiliation:
Hebrew University of Jerusalem
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Summary

Israel’s balance of payments changed dramatically between 1995 and 2015. These years mark a period of transition from deficits to surpluses in the current account. Among the factors behind this reversal were a sound macroeconomic policy, the global boom in high-tech industries, and the discovery of natural gas on Israel’s coast in the Mediterranean Sea. The transition reflects an increase in the national saving rate and a decline in the rate of national investment. While these important changes were taking place, the financial account of the balance of payments also shifted due to various structural changes, such as the completion of foreign exchange market liberalization and a shift to a floating exchange rate regime. Owing to the foregoing developments, Israel has become a net lender to the rest of the world. In this chapter we analyze and quantify these major changes and assess the extent to which the existence of current account surpluses be considered as a sustainable phenomenon.

Keywords

Balance of paymentscurrent accountcapital flowsexchange rate
Type
Chapter
Information
The Israeli Economy, 1995–2017
Light and Shadow in a Market Economy
 , pp. 138 - 167
Publisher: Cambridge University Press
Print publication year: 2021

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References

Primary Sources

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Ozer, B., Reis, S., and Sofer, Y. (2005). Liberalization of the Financial Account in Israel. Working Paper, Bank of Israel.Google Scholar

Secondary Sources

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