Over the weekend, the credit rating company Moody’s 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.
The company notes that the reasons for raising the rating forecast include 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, reflected in significantly lowering the debt-to-government The primacy.
The company’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 is noted that the debt-to-GDP ratio began to decline last year and the company expects it to reach 64% by 2024. Company representatives note that although the political environment is polarized, there is broad agreement on economic and fiscal policy.
The company notes that the approval of the credit rating, at the level of A1, reflects a balance between a stable economy with good growth data and a high public debt burden. The company’s representatives also note the government’s proactive policy and growth data during the corona plague, which were better than most OECD countries, with a negative growth rate in 2020 that stood at only 2.2% and a high growth rate of 8.2% in 2021.
If the forecasts come true the rating has dropped
According to the company’s announcement, the rating increase may occur in a situation where fiscal convergence and debt reduction will continue, along with strong growth and the implementation of structural reforms that will help increase productivity over time. Alternatively, Moody’s may return the rating outlook to “stable” and even lower its credit rating if fiscal convergence and debt reduction do not materialize and the debt-to-GDP ratio increases significantly.
Finance Minister Avigdor Lieberman said: “I welcome the decision by the rating company Moody’s to raise Israel’s rating outlook. Appropriate for the needs of the economy and the promotion of structural reforms that constitute engines of growth for the coming years. “