Despite the political paralysis and terrorist attacks, the credit rating company Moody's last night (Friday) approved Israel's credit rating at A1 level and updated the rating forecast to "positive", following the strong fiscal performance and strength of the Israeli economy.
The increase in the forecast means that Israel's credit rating may rise in the range of up to two years.
It should be noted that in July 2018, Israel's rating forecast rose to "positive", but in April 2020 it was updated to "stable" following the corona crisis.
Moody's noted that the reasons for raising the rating outlook are, among other things, the promotion of structural reforms by the current government, designed to address the long-term challenges of the Israeli economy, as well as the rapid recovery of the economy and optimal fiscal performance. The government deficit is significantly beyond initial forecasts.
The company also noted that promoting structural reforms - such as reducing the regulatory burden, raising the retirement age for women, integrating labor market populations and developing infrastructure - will help address key economic challenges, including moderate productivity growth and a low labor force participation rate.
It was also noted in favor of the reform of the designated bonds, which is expected to result in savings in government financing costs.
Performance beat the forecasts
Moody's' announcement states that the performance of the Israeli economy has beaten forecasts due to high tax revenues.
This is reflected in the reduction of the government deficit by 7% of GDP within one year - one of the strongest performances among the countries of the world.
The company expects that the deficit will stand at 3.4% at the end of 2022, a rate lower than the original target of 3.9%.
It was noted that the debt-to-GDP ratio began to decline last year, and the company expects it to reach 64% by 2024. Company representatives noted that although the political environment is polarized, there is broad agreement on economic and fiscal policy.
The company's announcement states that the approval of the credit rating, at the level of A1, reflects a balance between a stable economy with good growth figures and a high public debt burden.
The government's proactive policy was also noted, as well as growth data during the corona plague, which were better than most OECD countries, with a negative growth of only 2.2% in 2020 and a high growth of 8.2% in 2021.
The company noted positively the resilience of the Israeli economy and its ability to recover quickly from local and external shocks, as well as the government's quick response in dealing with the corona crisis.
It was also noted that Israel's exposure to the current conflict between Russia and Ukraine is limited and has little impact on the economy, partly due to domestic gas production and in light of limited foreign trade with Russia.
In addition, it is written that the geopolitical tensions still exist, and constitute a limit on the credit rating despite the friendly relations created with Arab countries as a result of the Abrahamic agreements.
It has also been said that in recent times there has been relative political stability, after a long period of high uncertainty that has begun to negatively affect the effectiveness of fiscal policy.
However, due to the loss of a majority of the coalition in the Knesset, it remains to be seen whether the current government will be able to implement the structural reforms planned while pursuing a responsible fiscal policy, also due to the fact that the high tax revenues will likely turn out to be temporary.
Minister of Finance, Avigdor Lieberman, Photo: Jonathan Shaul
"Expressing confidence in the Israeli economy"
Moody’s noted that the rating increase may occur in a situation where fiscal convergence and debt reduction will continue, alongside strong growth and the implementation of structural reforms that will help increase productivity over time.
Alternatively, the credit rating company may return the rating outlook to "stable" and even lower the rating if fiscal convergence and debt reduction do not materialize and the debt-to-GDP ratio increases significantly.
The Minister of Finance, Avigdor Lieberman, welcomed the increase in the rating forecast and said that "Moody's decision comes against the background of high growth figures for two decades, and an unemployment rate that returned to its pre-Corona crisis. Structures that are engines of growth for the coming years. "
The Accountant General of the Treasury, Yahli Rotenberg, added that "raising the rating forecast to" positive "is an expression of confidence in the Israeli economy and debt management policy. This announcement comes against the background of the excellent data published last month The rapid recovery of the economy from the corona crisis and the responsible management of fiscal policy with a long-term vision.
"In its positive announcement, the rating company notes the rapid return of Israel to a declining path in the debt-to-GDP ratio, and the importance of continuing this trend. We hope and act that in the future raising the forecast to 'positive' 2018 the credit rating of Israel to the level of AA- ".
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