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. Last Updated: 07/27/2016

IMF Raps Israeli Fiscal Past, Urges Tighter Budget Rein

TEL AVIV -- The International Monetary Fund on Wednesday criticized Israel's expansionary fiscal policy of the past two years and urged medium-term reforms to get the economy back on track.

In an interim report, the IMF recommended measures to control public spending in addition to those proposed by the new government of Prime Minister Benjamin Netanyahu.

It also supported the Bank of Israel's tight monetary policy and its stand on lowering inflation in the medium term.

"The Israeli economy is at a pivotal juncture in the rapid, long-term expansion initiated by the large inflow of immigrants in the early 1990s and sustained by the peace process since then," said the report, released at the end of an annual visit by an IMF delegation.

A final report will be presented in Washington before the end of the year.

"Expansionary fiscal policy during the last two years strained the economy's resources ... and did so by boosting consumption rather than investment. As a result, the current account deteriorated, spearheaded by a surge in consumer imports and inflation accelerated," the report said.

The IMF welcomed the new government's stated commitment to fiscal consolidation, disinflation and structural reform. If implemented, prospects for these policies succeeding are good but the risks are "considerable," the IMF said.

Netanyahu's government has sent to the Knesset, Israel's parliament, a tight budget for 1997 that would cut 4.9 billion shekels or 3.2 percent of spending, excluding debt servicing. The Knesset has until the end of the year to pass the budget.