Israel’s economy, though currently stable, will be forced to overcome several major challenges in the near future, according to an annual report issued Wednesday by the International Monetary Fund.

Despite solid GDP growth, a low unemployment rate and steady inflation, the IMF said, growth in Israel is expected to remain below its potential, since planned fiscal tightening and the strengthening of the shekel will put a strain on the Israeli economy.

These developments are expected to deter trading partners from engaging in business with the country. 

The report pointed out other challenges facing Israel, including heavily inflated housing prices as well as mounting public debt, and decreasing the employment and productivity gaps between the general Jewish population and the ultra-Orthodox and Israeli-Arab communities.

The IMF went on to advise Israeli policy makers to strengthen financial institutions and to further apply regulations in order to curb public spending and to stave off boom-and-bust cycle risks in the housing market, respectively.

“In line with the recommendations of the 2012 Financial Sector Assessment Program (FSAP) Update, a Financial Stability Committee should be established, led by the Bank of Israel and focusing on macroprudential policies in normal times,” the report stated.

“Legal reforms aimed at strengthening the bank resolution framework should be legislated as soon as practicable,” it added.

The full report can be accessed here.

Last year, Israel’s economy grew by 3.3%, the lowest rate in ten years, Globes reported, with 25% of the growth attributed to the discovery of natural gas.

However, Israel was ranked among the highest of OECD countries in terms of growth, surpassing emerging economies such as Brazil and India.