International Credit Rating Company Fitch Has issued a statement approving the State of Israel’s credit rating at the level of A+ With a stable forecast. In its announcement, the company emphasizes the strong elements in the Israeli economy, including: rapid recovery of the economy, reduction of the budget deficit, strong external accounts and a strong institutional structure. According to the company, the main limitations on the credit rating are geopolitical risks and a relatively high debt burden.
The company notes that the rapid recovery of the Israeli economy is mainly due to the removal of corona restrictions, which have contributed to the sharp rise in private consumption. The company expects that GDP growth will amount to about 4.5% in 2022 and 3.8% in 2023. The announcement notes positively Israel’s external accounts, which continued to prosper during the corona period against the background of the increase in services exports and the strength of the high-tech sector. These led to appreciation pressures on the currency and also contributed to an increase in foreign exchange reserves to the amount of $ 213 billion at the end of 2021.
The Minister of Finance, Avigdor Lieberman: “The rating company’s announcement constitutes a vote of confidence in the resilience of the Israeli economy and in the government’s economic policy. We will continue to act responsibly in the face of the economic challenges we face while continuing to strengthen the growth engines of the economy and maintain the status of the Israeli economy as one of the world leaders. “
Referring to the fiscal framework, it was written that there was a sharp decline in the government deficit, from 11.4% in 2020 to 4.5% in 2021, mainly due to an increase in state revenues of about 30%, while maintaining a similar level of spending for 2020. The company estimates that The government deficit in 2022 will be about 3.6% of GDP. The rating company expects the Israeli economy to remain strong, but given the background of political instability, it may be difficult to make fiscal adjustments. As a result, the company expects a gradual decline in debt-to-GDP ratio of 71.7% in 2020 to a rate of 68.9% in 2024.
The rating agency notes that the narrow majority of the coalition and the risk of not passing a state budget for the years 2023-2024, may constitute a barrier to the implementation of effective fiscal policy. At the same time the company assumes that eventually the 2023 budget will be approved.
The company states in its announcement the security risks as a factor that burdens the credit rating. At the same time, Israel’s credit profile has shown resilience to periodic conflicts.
The company explains that an improvement in the credit rating is possible in the event that the trend of reducing the debt-to-GDP ratio continues over time, combined with the determination of prudent fiscal policy, as well as if there is a permanent reduction in geopolitical risks. Alternatively, if there is a sustained increase in the debt-to-GDP ratio, or if security risks materialize with severe and long-term economic impact materialize, a negative rating action is possible.