1. The Israeli Economy: Ongoing Progress November 2007 Government of Israel

2. 2 GDP Growth (% per annum) Source: Central Bureau of Statistics and Ministry of Finance Projections Macro Economic Performance – High Growth, Low Inflation and significantly improving Labor Market Israel Average (4.2%) OECD Average (3.2%) %

3. 3 Current Account as % of GDP Sources: Central Bureau of Statistics and the Bank of Israel Emergence of Current Account Surplus Reflects the New Dynamics of the Israeli Economy 2006H2 – 2007H1 *Including the Public sector, Private sector and the Banking system Net Inflows of Foreign Investment (US$ billions) 2006: Total FI = 18% GDP FDI = 10% GDP Foreign Investments At All-time Record

4. 4 The Tel Aviv Stock Market & Long-term Government Yields, Reflect Health of the Israeli Economy Source: Reuters and the Bank of Israel TA-25 Index and Yields on 10Y Government Fix Rate NIS Bonds Yield on 10Y Gov. Bond The Tel Aviv 25 Index

5. 5 Education and R&D Underpin Israel’s High-Tech Sector, The Engine of the Economy Source: OECD Education at a Glance. 2005& 2006 Public Expenditure on Education (% of GDP, 2004) Civilian R&D Expenditure as % of GDP (2005)

6. 6 Budget discipline Tax reduction From welfare to work Market economy – privatization & reforms Clear and Consistent Economic Policy- 4 Main Pillars

7. 7 Source: Bank of Israel and Ministry of Finance Projections An Impressive Budget Performance - The Product of a Prudent Fiscal Policy Government Budget Deficit (% of GDP) General Government Expenditure (% of GDP) Deficit Ceilings

8. 8 A Clear and Sustainable Trends of Decreasing Public Debt Ratio Gross Public and Government Debt as % of GDP % Assuming: Deficit of: 0.3% (2007), 1.6% (2008) and 1% (2009 and onwards) Growth of: 5.4% (2007), 4.2% (2008), and 4% (2009 and onwards) Inflation of: 2.6% (2007), 2.2% (2008) and 2% (2009 and onwards) No Privatization Proceeds from 2008 onwards Public Debt Ratio Simulation for 2007-2025 Source: Bank of Israel and Ministry of Finance Projections

9. 9 Tax Reduction YearTax rate 200336% 200435% 200534% 200631% 200729% 200827% 200926% 201025% Monthly income, NIS, 2007 prices Average tax rate on personal income 2007 2002 2010 Corporate tax rate Source: Ministry of Finance

10. 10 Unemployment and Participation Rate From Welfare to Work % Source: Central Bureau of Statistics and Ministry of Finance Projections

11. 11 Oil Refinery Ashdod & Haifa Bezeq (telecom corp) Bank Leumi Discount Bank El Al Israel Airlines, Ltd ZIM (Israel navigation corp) Tax Reforms PensionFundReforms Capital Market Reforms InvestmentinInfrastructure DomesticGovernment Bonds BondsReforms Sea Ports Structural Reform Reform Highlights of Structural Reforms and Privatization from The Last Years

12. 12 EnhanceCompetition In Public Transportation LandReform Electricity Sector Reform Labor Market Labor MarketReform EducationReform Many More Structural Reforms and Privatizations are on The Agenda CapitalMarketcommittee Israel Electric Corp. Israel Postal Company Israel Military Industries Israel Aircraft Industries Bank Leumi (The remaining 10%) Industrial Development bank Israel Gov’s Coins and Medals Corp.

13. 13 Ongoing Progress of The Capital Markets Reform – Credit Market Source: Source: Bank of Israel and Ministry of Finance Projections Distribution of The Business Credit %

14. 14 Ongoing Progress of The Capital Markets Reform – Stock Market Source: Source: Bank of Israel and Ministry of Finance Projections Holding of Shares, 2000-2007 %

15. 15 Distribution of Selected Items of the Long-Term Savings Institutions’ Asset Portfolio,1996 – 2006 Effect of increased exposure to capital markets and increasing diversification %

16. 16 Summary  Clear and consistent economic policy  Commitment to budget discipline, tax reduction and debt reduction  Commitment to structural reforms  Investing in human and capital infrastructure  Impressive economic performance 4 consecutive years  Economy has proven highly resilient to external shocks  Commitment to establish a competitive basis in the Israeli capital markets  Increasing investment flexibility help to improve the Israeli capital markets