Smotrich's comments on the cuts to youth movements/Knesset channel
A lot of commotion arose last week over the fact that Israel's credit rating was downgraded by the international rating company Moody's to 2A, similar to Slovakia, Malta, Lithuania and Poland - and still above Portugal, Latvia and Slovenia, which are ranked lower with 3A.
All the countries on the list, With the exception of Israel, members of the European Union. It is true that Moody's reduced Israel's credit rating to 2A, but it also announced that because of the war in Gaza and because of the fear of a broad conflict with Hezbollah, in addition to the social rift, it is reducing Israel's rating expectations to " Negative."
The work of Moody's economists in reducing Israel's rating expectations was negligent in that they did not fully examine the strength of the Israeli economy, its ability to rehabilitate itself after wars, the very high savings rate in Israel and the fact, as they know, that the Israeli economy is A net credit provider, not to mention that Israel has always paid its debts on time and accurately.
If Moody's began to specialize in a crystal ball, in forward-looking information, in everything related to the political and social structure of Israel, the courts, society, the Knesset, the existing coalition and the confrontation with Hezbollah In Lebanon, she also had to take into account other factors that are not purely economic, such as the support that Israel receives from the USA, the possibility of support from Germany, not to mention the support of world Jewry.
Moody's economists wet their eyes.
The support of the USA, Germany and world Jewry was observed by the eyes of Moody's economists from seeing/ShutterStock, Dariusz Gryczka
Don't understand the economic implications
A downgrade was expected, and perhaps Israel's disappointment is that even after the downgrade, the expectation was reduced to "negative", meaning the possibility of a further downgrade.
Since 2008 Israel's credit rating has been 1A.
It can also be seen another way: if the Israeli victory in the Gaza Strip is complete, the desire of Iran's arms for an all-out war in the north will decrease, especially after the Americans rolled up their sleeves both with attacks in Syria and Iraq and the disintegration of the Houthis in Yemen.
In the field of American involvement, Moody's economists suddenly do not understand the economic implications?
What exactly do they specialize in outside of the box of dry economic data?
Now we will wait for the credit rating of the other rating companies according to the developments on the ground and their militancy in everything related to forward-looking information, in the field of war, according to their method.
Moody's reduced the rating mainly due to the war in Gaza and no horizon for the end of the war and a political settlement - something that leads to political instability.
Moody's also states that it fears the weakening of the legislative authority.
The 2A rating is sixth out of a list of ten "investment" ratings, then there are 11 more ratings down Moody's rating table with categories, "Non-Investment Rating", "Speculative Rating", "At Risk Rating", "Poor Rating", "Super speculative rating" up to a rating of close to bankruptcy.
The credit rating represents for investors in the world what the ability or risk is in extending credit to a certain or unknown country or to this or that bank and companies, all over the world.
The rating is ordered by the state or the bank or the company and it pays for the rating, the credit rating companies make a living from this.
Countries are willing to pay for their rating so that they can stand in the window, in the global showcase where the investors, the credit providers look and examine.
In our case the Israeli government pays for Moody's charlatanry.
What interests investors in bonds, of a state or other entity, is ultimately the risk of providing a loan compared to the amount of interest they can receive. Naturally, the greater the risk, i.e. the lower the credit rating, the investors will demand a higher interest rate that will burden the borrower more the loan.
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The world owes us capital
One of the factors that the credit rating companies check is the existing obligations of the credit taker, in the case before us Israel.
Here I will tell you a secret: Israel not only does not owe capital to the world, but on the contrary - the world owes the Israeli economy capital in the net amount of 220.35 billion dollars, an amount equal to 42% of the Israeli GDP.
Yes, the Israeli economy provides credit to the world for this enormous amount.
Within a year, the Israeli economy increased its credit position to the world by a net amount of another 24.62 billion dollars.
Israel really does not need credit from abroad in a desperate way, as populist media outlets in Israel cried last week.
In the last quarter of 2023, the scope of Israel's borrowing from the world decreased from 156.43 billion dollars to 155.17 billion dollars, while the Israeli economy actually provided the world with increased credit From $352.16 billion to $375.51 billion.
Governor of the Bank of Israel, Prof. Amir Yaron.
Point out that there has never been any delay in government debt repayments/Flash 90, Jonathan Zindel
Pay the debt on time
Please note, during the Gulf War in 1991, Israel was in net debt to the world to the extent of about 36% of GDP, that is, we went from a net debt to the world in the 1990s to a net credit to the world today, after Israel has been in a current account surplus since 2003.
Not the widow of Israel, a country that has never been late in paying its debts or postponed its debts or asked for a debt settlement.
The Bank of Israel points out this week that the State of Israel has experienced geopolitical crises in the past during periods when debt/GDP ratios were much higher and there was never any delay in government debt repayments.
In this context, it is also important to remember the high growth potential of the economy and the structural surplus in the current account, the Bank of Israel points out.
Not only that Israel lends net to the world, i.e. provides credit to the world, one of the main factors goes unnoticed by the critics - the savings rate in Israel.
The rate of national savings from the net national income was 16.3% in 2023 and 16.7% in 2022.
The net savings of households in Israel from disposable income was 20.7% in 2022 after 22.5% in 2021 and 26.8% in 2020 is the year of the Corona, higher than the year before 2019 Corona - 19%.
In 2015 the savings rate was 16.4% and in 2006 13.6%, meaning that there is a sharp increase in the net savings rate over the years with the increase in private income.
By definition, the more an economy saves, the more it invests and the more it grows.
IDF fighters in Gaza. A huge expenditure of about NIS 250 billion/IDF spokesman
Pay attention to the amazing figure that I am revealing only to you: the rate of savings from the GDP in Israel is in fourth place in the world after oil-rich Norway, Denmark, which dominates trade in the oceans, and Chile.
The savings rate from the GDP in Israel was 16.3% in 2022, a savings rate that could easily absorb government bond issues for the whole world through treasury tenders that Israelis and international investors participate in together every week.
Not only that: the Central Bank has already announced that most sectors of the economy have recorded a recovery Already in January.
The unemployment rate was 3.1% and the labor force participation rate rose to 62.7% in December after 62.3% in November.
This means that every month more and more savings are created, mostly mandatory, through the pension, provident and training fund systems, which will be happy to give their colleagues greater profits resulting from the rising yields of government bonds, which is certainly a safe asset for those who live in Israel.
So that we understand the meaning of the savings rate in Israel Let's make a comparison: the savings rate in the Calvinist Netherlands is 13.9%, the savings rate in South Korea, which strives for rapid growth, is 12.4%, the savings rate in Switzerland, known for its thrift, is 11%, in Germany 9.1%, in the European Union only 6.1%, in the Spaniards who like to spend 5.3%, Japan which was growing until 1991 with a savings rate of only 4.5%, Great Britain 1.7% and the superpower USA 1.5%.
Portugal and Greece with negative savings.
This means that Israel has a tremendous potential to deal with the increase in debt to GDP towards 67%, which over the years will return and decrease as we knew how to do after the corona epidemic.
The Eurozone would dream of reaching Israel's GDP debt ratio, it stands at 90.3%.
In the EU as a whole the debt to GDP is 84.4%!
In addition to the Israeli capital that is being loaned to the world and the tremendous savings rate in Israel, the credit rating companies must remember that the US intends to make another 14.5 billion dollars available to Israel, which will reduce the budgetary strain on the economy. In addition, the Jews of the world have not yet opened their wallets to aid Israel, in times of emergency they are always Join the mission See the high-cost advertising in the US Super Bowl this week.
A surprising figure: the rate of savings from GDP in Israel is in fourth place in the world/ShutterStock
Vitality that other countries do not have
Another section that the credit rating companies check is the economic history of the economy they scan.
Israel's progress in the last two decades is unprecedented compared to other countries: the GDP per capita last year reached $53,196, similar to Canada with $53,247 per capita, Belgium $53,657 per capita, more than the Germany you dreamed of with $52,824, the former superpower Great Britain $48,912 per capita, France which is still colonial 46,315 dollars per capita, Italy whose inhabitants live the moment with 37,146 dollars per capita and Japan which was a world wonder until 1991 with a GDP of 33,147 dollars per capita.
Would you believe this list from the International Monetary Fund a decade ago?
No.
Israel's economic history proves that the Israeli economy is strong and has grown well, it has a vitality that few countries in the world have.
Bank of Israel Governor Amir Yaron stated in a sound message that the Israeli economy is indeed founded on solid and healthy economic foundations, while leading the world in the fields of innovation and technology.
The central bank favorably notes Moody's emphasis that Israel's macroeconomic and monetary policy is sound.
The Moody's report indicates the resilience of the Israeli economy which was reflected in the rapid recovery from the initial shock of Shiva in October 2023. The rating company notes to praise Israel's economic strength and so far Israel is coping well with the economic consequences of the war.
The government's willingness to raise taxes, such as VAT next year, is a positive sign.
Economic conduct is one of the sections that the credit rating companies examine. Moody's says that the strength of the Israeli government is lower than Israel's economic strength. The same rating company points out to praise the economic strength of Israel, but the huge increase in defense spending will be a burden on Israel, spending that will continue to grow by 0.5% each year in the coming years. The debt-to-GDP ratio will rise to 67% as mentioned, although less than during the Corona period, 70%, but more than the original expectation of 55% The economic conduct must change this year.
The governor points out that as we knew how to recover from difficult times in the past, we will be able to return and prosper soon, and the Israeli economy has the strength to ensure that this will happen this time. To ensure that the situation does not worsen, the Bank of Israel proposes a number of actions to address the economic issues raised in the report by the Moody's rating company s, including the necessary adjustments in the 2024 budget.
Another impact on the economy will be the rating of the banking system, which has a strong capital structure since the term of governor Stanley Fisher, who demanded to increase the capital adequacy of the banks, but as soon as a country's rating goes down, the banks' rating also goes down almost automatically, what else that the banking system with huge loans to the problematic sector of the housing and construction market.
Indeed, Moody's also downgraded the banks this week.
Haredim demonstration.
It is better to concentrate on equalizing the burden and not on recruiting/speaking the Israel Police
Recruitment will follow
Another issue that Israel needs to show the rating companies is the growth potential.
Good growth makes it easier to meet the goals of an economy that can meet its obligations.
The general public must stop demanding equality in the burden of the military - it is better to concentrate on equality in the burden of work, dedicated budgets for professional training for ultra-Orthodox, the absorption of ultra-Orthodox for high-tech professions in the civil service and also in the army for those who wish to do so, in the future recruitment will come naturally.
Strengthening the economy is the order of the hour, more working hands and stronger growth that can and will enable the debt of the State of Israel to be serviced by the enormous expenditure of about 250 billion shekels for military expenses these days and civilian expenses related to the damned war, and perhaps another 30 billion shekels per year in the coming years due to its expansion of the frontal fighter army, more armor and more commando units.
We really need to raise capital in increasing amounts, and what is happening on the ground?
On Friday night, Moody's published its report on the downgrade, while on Monday, in the Treasury's regular weekly tender, it issued NIS 4.5 billion as planned.
The demands were enormous: 4.6 to 10 times compared to the supply, the allocation in relation to the demand was on average 37% to 75%.
The prices of the bonds at the end of the auction were lower than average, meaning that the demand was rigid.
In fact the Treasury could raise at a lower price because of the huge demand.
If there is demand, the price is reduced, in this case the interest rate that Israel pays.
The war broke out on the seventh of October 2023, everything was already embodied in the price that the Israeli government had to pay for raising capital in Israel and around the world.
Why are investors willing to lend to the Israeli government despite the "negative" outlook for the country's credit rating?
For a simple reason: the world is in an economic slowdown and most economies in the world are in difficulties, including Europe and China not to mention America.
That is why the choice is to invest in reliable and promising Israel, despite the war and despite Moody's report.
More on the same topic:
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GDP debt ratio
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