Minister of Finance Yair Lapid: “We will continue pursuing a responsible economic policy for the benefit of the Israeli public”
The S&P international credit rating agency today reaffirmed the credit rating of the State of Israel, leaving it unchanged at a level of A+ with a stable outlook. The statement published by the agency stated that the rating had been reaffirmed based on improved fiscal discipline, stable economic growth and a continued decline in the debt-to-GDP ratio. This is the second time Israel’s credit rating has been reaffirmed since the agency’s annual visit to Israel in August 2013.
The S&P statement notes favorably Israel’s diverse and prosperous economy and the positive impact of the natural gas discoveries on the country’s growth potential and external accounts. It also notes the improvement in Israel’s fiscal condition, attributable to the consensus on maintaining fiscal discipline, the policy measures implemented in the 2013-2014 state budget, as well as the upward revision of the GDP (due to changes in the calculation methodology of the Central Bureau of Statistics), combined with high one-off revenues in 2013. S&P cites two main restrictions on upgrading the rating: geopolitical risks and Israel’s fiscal condition, in spite of its improving trend.
The growth in GDP per-capita, as estimated by S&P, positions Israel in the category of high-income economies with a growth trend at the upper limit compared to its peer countries. The rating agency predicts real economic growth at 3.2% in 2014 and 3.4% during 2015-2107, due to the expected recovery in Israel’s major export markets.
The fiscal policy measures along with the stable growth forecast and a low interest environment, generate expectations of a reduction in the government debt burden and in interest payments relative to the GDP in the medium term, which would support an increase in Israel’s credit rating.
S&P considers Israel’s strong external accounts and monetary flexibility as signs of strength that contribute to its credit rating. However, the agency no longer regards the shekel as a free-floating currency, and it foresees increasing involvement by the Bank of Israel in setting the exchange rate in order to contend with currency appreciation pressures. In this context, the policy steps taken by the Bank of Israel to combat the rise in housing prices have failed to stem rising prices, though they have succeeded in moderating the systemic risks in this market.
Israel’s government institutions are described in the agency’s announcement as being effective, transparent and credible, with the latest electoral reform expected to reduce political instability.
The principal challenges facing the Israeli economy, according to S&P, are geopolitical risks that could affect the country’s credit rating by deterring foreign investors, which in turn could damage the country’s potential economic growth and impair its fiscal flexibility.
In its statement S&P says that a significant improvement in the geopolitical situation and a further significant decrease in the debt-to-GDP ratio could boost Israel’s rating, whereas deterioration in the geopolitical situation and halting of the downward debt-to-GDP trend could create negative pressure on the rating.
Minister of Finance Yair Lapid said: “We will continue pursuing a responsible economic policy for the good of the Israeli public.”
Finance Ministry Accountant-General Michal Abadi Boiangiu, said: “Reaffirming the rating underscores the importance of maintaining the fiscal framework and lowering the debt-to-GDP ratio, to maintain Israel’s high credit rating.”
The following are Israel’s current ratings by the international rating agencies:
S&P: A+ Stable
Fitch: A Positive
Moody’s: A1 Stable