The S&P credit rating agency is expected to decide on the status of Israel's credit rating on Friday evening, after the company published a pessimistic forecast regarding Israel's credit rating following the legal reform legislation.
A credit rating is a kind of score given to the state, and defines its ability to repay loans in the future. This score has quite a few effects – first and foremost on state bond yields, and as a result on the interest paid by the state for the loans it takes to finance ongoing activity. The lower the rating, the higher the interest rate, and the higher the government's expenditure on debt repayment. These aspects influence, inter alia, the level of taxes in the economy and the budgeting of government ministries.
At the same time, the country's credit rating in turn affects the banks' credit rating and the bond yields they issue, and thus also the percentage of interest they charge on mortgages.
In addition to the rating itself, rating agencies publish a "horizon" or "forecast" for the rating - a figure that predicts a change in the rating in the future. A "negative" forecast is a kind of "yellow card" that indicates problems and gives an opportunity for correction, a "stable" forecast indicates that no change in the rating is expected, and the "positive" forecast shows that there is room for an increase in the rating in the future.
The rating that S&P has given Israel so far is -AA, only two brackets lower than the highest rating (AAA). This rating is one level higher than the rating that the other two agencies (Moody's and Fitch) give the country.
The issue of the rating came to the public center last April, when the Moody's rating agency announced the downgrading of Israel's rating horizon from positive to stable. The reason that led Moody's to lower the rating forecast at the time were the events surrounding the legal reform and what she described at the time as a risk of "deterioration in Israeli governance" and deepening polarization among the people.
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