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INTRODUCTION
1. General
This publication presents Israel’s balance of payments and the state of the economy’s assets
and commitments vis-à-vis elements abroad, during the first half of 2004. The current
account and capital account are presented by seasonally adjusted and not seasonally
adjusted data.
The following tables appear in this publication:
Balance of payments – summary (seasonally adjusted and not seasonally adjusted)
Current account (seasonally adjusted)
Trade in goods (seasonally adjusted and not seasonally adjusted)
Trade in services (seasonally adjusted and not seasonally adjusted)
Income (seasonally adjusted and not seasonally adjusted)
Current and capital transfers (seasonally adjusted and not seasonally adjusted)
Adjustment of foreign trade data to balance of payments definitions (not seasonally
adjusted)
8. Freight and transportation (not seasonally adjusted)
9. Financial account (not seasonally adjusted)
10. Changes in foreign loans, by sector (not seasonally adjusted)
11. Foreign liabilities – end of period (not seasonally adjusted)
12. Foreign assets – end of period (not seasonally adjusted)
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Balance of Payments is a systematic listing of all economic transactions which were
performed during a specific period between Israeli and foreign residents. The Israeli balance
of payments is compiled in accordance with the definitions of the International Monetary
Fund1. These definitions were adopted by international statistical institutions and by most
countries in the world. They make it possible to present the balance of payments in a
consistent manner, and adjust it to definitions and classifications common in national
accounting.
The balance of payments is composed of the following accounts:
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The current account
The capital account
The financial account
The current account presents transactions between Israeli and foreign residents, according
to the following:
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Import and export of goods and services (goods account and services account)

Income and expenditure from production factors – capital and labour (income
account), such as the interest received by Israeli residents on their investments
abroad, or the interest paid by Israeli residents on investments made by foreign
residents in Israel (income and expenditure from a capital production factor); and
the income and expenditure resulting from the labour of Israeli residents abroad,
International Monetary Fund, Balance of Payments Manual, 5th ed., Washington DC, 1993.
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or that of foreign labour in Israel (income and expenditure from a labour production
factor).

Current transfers (current transfers account), which are transferred between
Israeli and foreign residents, such as transfers by the USA government and the
Jewish Agency to Israel; transfers by the Israeli government to international
institutions; and transfers between private individuals in Israel and abroad.
The deficit (surplus) in the current account, is the summary of all credits and debits in the
subsidiary accounts of the current account.
The capital account is composed of capital transfers, which are separate from current
transfers, and includes transfers by new immigrants and donations received from abroad for
specified projects, which are designated mostly for investment in fixed assets.
The financial account mainly details the financial investments of foreign residents in Israel,
and of Israeli residents abroad, such as acquisition of equity in commercial companies and a
reinvestment of profits by interested parties (direct investment account), acquisition of
negotiable securities (portfolio investment account), making bank deposits, loans and
commercial credit (other investments account). This account also includes the changes in the
national foreign exchange balance abroad (reserves), held by the Bank of Israel.
Statistical discrepancies are the difference between the summary of the current account
(the deficit/surplus in the current account), and the summary of the capital account and the
financial account. In theory, every entry on the credit side of the balance of payments must
be balanced by a corresponding entry on the debit side. Therefore, all entries on the credit
side of the current, capital and financial accounts, must be balanced by the total debit
entries. In fact, however, due to the various sources used for drawing up the balance sheet,
and the lack of credible data in all sections, there is an imbalance which is expressed in the
section “statistical differences”.
Transactions with Palestinian Authority residents are included in the balance of
payments as of 1967.
The income account in the balance sheet has been drawn up according to a new formula
from the methodological aspect, as of 2002. Data from previous years were updated
according to the new formula, up to 1995. Concurrently, the presentation of the income
account was also changed, and since then it has been drawn up according to the full
distribution of financial tools, institutional sectors and types of investment, as required by the
International Monetary Fund.
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2. Main Findings
The surplus in the current account of the balance of payment in the first half of 2004 –
seasonally adjusted – totaled 216 million dollars, as opposed to a deficit of 176 million
dollars in the second half of 2003. The deficit in the current account results from totaling
the deficits in the goods and services account and the income account (from labour and
capital), and adding the surplus in the current transfers account.
The balance of payments also includes, in addition to the current account, both the capital
account and the financial account. From the financial account it can been seen that direct
investments and investments in securities by foreign residents in Israel, including
bonds acquisitions, rose by 4.5 billion dollars in the first half of 2004, compared with a rise of
2.1 billion dollars in the corresponding half of 2003.
In other investments by foreign residents in the Israeli economy – which includes
foreign resident deposits, non-negotiable government bonds and foreign credit for the private
sector – a drop of 0.4 billion dollars was recorded in the first half of 2004, continuing the drop
of 0.5 billion dollars in the first half of 2003.
In Israeli investments abroad, which include direct investments and investments in
securities, a rise was recorded of 3.1 billion dollars in the reported period, compared with a
rise of 1.0 billion dollars in the corresponding half of 2003.
The goods, services and income (from production factors) account
In the first half of 2004 the deficit in this account, seasonally adjusted, totaled 2.7 billion
dollars, compared with 3.3 billion dollars in the second half of 2003. The general drop in the
deficit, in the sum of 0.6 billion dollars, between the two periods, resulted from a drop in the
deficit of the income account, in the sum of 0.4 billion dollars, and a drop in the deficit of the
goods and services account, in the sum of 0.2 billion dollars. The changes in the income
account resulted mainly from fluctuations in the component of income from capital –dividends
and undistributed profits.
An additional reduction in the deficit of the goods and services account was recorded in
the first half of 2004, after continuous drops since the first half of 2002. In the first half of
2004 the deficit in this account, seasonally adjusted, totaled 0.7 billion dollars, compared with
0.9 billion dollars in the second half of 2003 and 2.3 billion dollars in the first half of 2002.
The deficit in the goods account, seasonally adjusted, dropped from 1.0 billion dollars in the
second half of 2003 to 0.7 billion dollars in the survey period. The drop in the deficit resulted
from a rise of 2.1 billion dollars in the export of goods between the two periods, which was
partially set off by a corresponding rise of 1.8 billion dollars in the import of goods. The
export of goods in the survey period totaled 17.6 billion dollars, compared with 15.5 billion
dollars in the second half of 2003. The import of goods totaled 18.4 billion dollars,
compared with 16.6 billion dollars in the second half of 2003. The import of goods includes
security imports of 0.9 billion dollars, but does not include the expenditure for transporting
the goods to Israel.
In the services account import and export totaled similar sums in the survey period,
compared with an export surplus of 0.2 billion dollars more than imports, in the second half of
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2003, seasonally adjusted. The sum export of services totaled 6.8 billion dollars in the first
half of 2004, compared with 6.5 billion dollars in the second half of 2003. The import of
services totaled 6.8 billion dollars for the survey period, compared with 6.3 in the second half
of 2003.
The income from tourism services, seasonally adjusted, totaled 1.1 billion dollars in the
first half of 2004, similar to the data in the second half of 2003, and in contrast to 0.9 billion
dollars in the first half of the same year. This income includes the local expenditure of foreign
workers, which dropped recently as a result of the drop in the number of foreign workers
staying in Israel. The import of tourism services, seasonally adjusted, totaled 1.4 billion
dollars in the survey period, similar to import in the second half of 2003.
In the income from interest payments and labour costs account, a surplus of
expenditures totaled 2.0 billion dollars in the first half of 2004, compared with 2.4 billion
dollars in the second half of 2003. From the data it can be seen that in receipts from
investments – constituted from interest, dividends and undistributed profits – a slight drop
occurred, from 0.9 billion dollars in the second half of 2003 to 0.8 billion dollars in the survey
period. On the other hand, payments on investments dropped from 2.2 billion dollars in the
second half of 2003 to 1.9 billion dollars in the survey period. This drop resulted mainly from
the dividends and undistributed profits on investments by foreign residents in Israel. These
payments were particularly high in the second half of 2003. A drop was recorded in
expenditures on payments to salaried employees, from 1.1 billion dollars in the second
half of 2003 to 1.0 billion dollars in the survey period.
Current transfers account
The surplus in this account, seasonally adjusted, totaled 2.9 billion dollars in the first half of
2004, compared with 3.1 billion dollars in the second half of 2003.
The financial account
Total foreign investments in the economy rose by 4.1 billion dollars in the first half of
2004, compared with a rise of 3.9 billion dollars in the second half of 2003, and 1.6 billion
dollars in the first half of 2003. These investments included direct investments, investments
in negotiable securities and other investments. The rise in total foreign investments in the
economy resulted from the rise in investments in negotiable securities, whereas a drop was
recorded in direct investments and other investments in the survey period.
Direct investments by foreign residents in Israel rose by 1.2 billion dollars in the first half
of 2004, similar to the rise in the second half of 2003 and in contrast to 2.4 billion dollars in
the first half of 2003 (direct investments are investments in which the investor receives voting
rights on the board of directors, and the possibility of participating in the management of the
company).
A significant increase of 3.3 billion dollars was recorded in investments by foreign
residents in negotiable Israeli securities (including bonds issued by the Israel
government) in the survey period, compared with an increase of 2.6 billion dollars in the
second half of 2003 and a decrease of 0.3 billion dollars in the first half of 2003. The increase
in investments by foreign residents in negotiable Israeli securities resulted mainly from new
share issues which Israeli companies conducted abroad, and from government bond issues
abroad. The government offered two issues abroad during the survey period: one in March,
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totaling 500 million dollars and the second in April, totaling 1 billion dollars. The second issue
was carried out with the full guarantee of the USA.
In other investments by foreign residents in the economy, a decline of 0.4 billion dollars
was recorded in the first half of 2004. In the second half of 2003, no significant changes
occurred in these investments, and in the first half of 2003, a drop of 0.5 billion dollars was
recorded.
Direct investments by Israeli residents abroad in the first half of 2004 rose by 2.0 billion
dollars, compared with a rise of 0.7 billion dollars in the corresponding half of 2003.
In investments in securities by Israeli residents abroad, including shares and bonds, a
rise of 1.1 billion dollars was recorded in the first half of 2004, compared with 0.2 billion
dollars in the first half of 2003.
Other investments by Israelis abroad – including mainly deposits, loans and commercial
credit – rose in the first half of 2004 by 3.6 billion dollars, compared with a rise of 2.9 billion
dollars in the first half of 2003. This rise resulted mainly from additional credit for overseas
exports and growth of deposits abroad of banks and the private sector.
There were no changes recorded in reserve assets in the first half of 2004, compared with a
drop of 0.1 billion dollars in the corresponding half of 2003 (changes do not include reevaluation of the assets resulting from fluctuations in prices or exchange rates).
Summary of Foreign Liabilities and Foreign Assets
At the end of June, 2004 net foreign liabilities totaled 35.3 billion dollars. This sum is the
result of foreign liabilities totaling 130.6 billion dollars, offset by foreign assets totaling
95.3 billion dollars.
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3. Definitions
Current account: This account includes trading in Israeli goods abroad (the goods account
adjusted to the definitions of the balance of payments), the import and export of services (the
services account) and the foreign receipts and payments which result from income from
production factors (labour and capital) and current transfers (the income account and the
current transfers account).
Deficit (surplus) in the current account: A summary of the credits and debits in the current
account, for a specific period.
The goods account: This account includes transactions of import and export of goods. The
transactions included are those that relate to import and export of general goods, goods
intended for further processing, goods repairs, and goods supplied in ports to
freight/transport companies. The value of the goods recorded in the balance of payments is
on a F.O.B. basis; i.e., without freight/insurance charges which are recorded in the
appropriate services sections.
The services account: The main services recorded in the balance of payments are: travel
services, freight/transport services, computer and information services, communication
services, insurance, government services and other business services. Exports of travel
services include expenditure of foreign workers in Israel, in addition to expenditures of
tourists from abroad. Freight/transport services include fares of passengers traveling by sea
or air, freight haulage, ship and plane charter, and various port services. Freight insurance is
not included in this section, but in insurance services. Supply of goods in ports to
freight/transport companies is included in the goods account, as stated above.
The income account: Two types of transactions are represented in the income account;
1) income from labour
2) income from investments.
Income from labour is paid to private persons and includes wages and other auxiliary
expenses. This income is received by Israeli residents, on labour performed abroad, and by
foreign residents, on labour performed in Israel. Income from investments includes interest,
dividends and undistributed profits which are received from direct investments, investments
in securities or other investments, as detailed below.
Current transfers account: Transfers are recorded in the balance of payments in every
case where financial or non-financial assets are transferred between Israeli residents and
foreign residents, without another asset being transferred concurrently and in the opposite
direction. Current transfers are all those, which are not defined as capital transfers – see
definition of capital transfer below.
Current transfers are classified according to the sector receiving or conducting the transfer in
Israel. Actually, in the relevant balance of payments table, the distinction is between the
government sector and other sectors. Transfers from the government of the U.S.A. to Israel
are detailed separately.
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Capital account: This account includes capital transfers from Israel abroad and from abroad
to Israel. Capital transfers are usually connected to transfers of ownership of fixed assets, or
to debt amortization between countries.
In Israel, transfers conducted by new immigrants within the first three years of the date of
their immigration are considered capital transfers. Other capital transfers listed in the balance
of payments are part of those received from national institutions (Keren HaYesod, the Jewish
Agency) and from non-profit organizations.
The financial account: This account includes the financial transactions abroad of Israeli
residents, and of foreign residents in Israel, according to four main types: direct investments,
portfolio investments, other investments and reserve assets (see definitions below).
Direct investments: These are investments by foreign residents in local business
companies, or investments by Israeli residents in foreign companies. Investors in these types
of investments receive voting rights in the board of directors of the company and the
possibility of sharing in its management. Usually, holding over 10% of the company capital
shares is considered a direct investment. These investments include a purchase of shares,
owners’ and other types of loans, between a direct investor in Israel/abroad, and subsidiary
or affiliated companies abroad/in Israel.
Portfolio Investments: These include all investments in shares which are not defined as
direct investments and are not part of the country’s foreign currency reserves. This section
includes investments in shares (which are not direct investments), investments in bonds and
in notes.
Other investments: This section includes all other financial transactions – between Israeli
residents and foreign residents – not recorded as direct investments, portfolio investments or
foreign currency reserves. The main types of investments included in this group are:
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international trade credit (suppliers’ and exporters’ credit)
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loans
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cash and deposits
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changes in other assets or liabilities
Reserves assets: These are the foreign assets of the country, which are the responsibility of
the Bank of Israel and can be realized by it for purposes of financing deficits in the balance,
supervision of rates of exchange, or for other purposes. This section includes monetary gold,
special drawing rights, foreign currency reserves (including cash, deposits and securities),
reserves in the International Monetary Fund and other assets.
Foreign assets in debt instruments: Loans to foreign residents, bank deposits abroad,
foreign bonds and any other debt instrument, held by Israeli residents abroad.
Investments by Israeli residents abroad (excluding debt instruments): Includes direct
investments and portfolio investments of Israeli residents abroad, excluding investments as
debt instruments.
Investments by foreign residents in Israel (excluding debt instruments): Includes direct
investments and portfolio investments of foreign residents in Israel, excluding investments as
debt instruments.
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Foreign assets: Includes “Foreign assets in debt instruments” and “Investments by Israeli
residents abroad - excluding debt instruments”.
External debt: Total foreign liabilities in debt instruments (loans, deposits, bonds and other
instruments).
Net external debt: The total “external debt” of the economy, after reduction of “foreign
assets in debt instruments”.
Foreign liabilities: Total foreign liabilities, including “external debt” and “Investments by
Israeli residents abroad - excluding debt instruments”
Net foreign liabilities: “Foreign liabilities” after removal of “Foreign assets”.
4. Sources of the data
The main sources for drawing up the balance of payments are:

Import and export of goods from the current statistics of foreign trade

Reports by commercial banks to the Bank of Israel, regarding transactions in foreign
currency
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Reports by various companies to the CBS, regarding transactions with foreign
residents
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Data reported by government ministries and other institutions
5. Additional publications
The Central Bureau of Statistics summarizes the balance of payments data for each quarter
of the year. Full data of the balance of payments and foreign assets and liabilities, appear on
the CBS website (www.cbs.gov.il). The central data of the balance of payments and foreign
debts and assets, appear each month in the Monthly Bulletin of Statistics. Additional details
of the balance of payments data appear every quarter of a year in Current Statistics.
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