The credit rating company Fitch reaffirms the credit rating of Israel at the level of A +


by Ifi Reporter Category:Capital Market Aug 14, 2023

Credit rating agency Fitch Ratings has reaffirmed the credit rating of the State of Israel at the level of A+, with a stable forecast. The assessment takes into account a range of factors, both positive and negative, influencing the nation's economic and political landscape.

Fitch highlighted Israel's economy as diversified and robust, marked by high added value and strong external financial indicators. However, the agency pointed out the challenge posed by the nation's elevated government debt-to-GDP ratio, a concern that is offset by the country's economic strength.

The analysis emphasized that Israel faces increased security risks and political instability, which can hinder policy implementation and economic growth. This acknowledgment of potential vulnerabilities underscores the balanced nature of the A+ rating.

A significant point of discussion is the ongoing legal changes within Israel's judicial system. While the original plan for these reforms has been moderated, they continue to draw substantial controversy and civil resistance. Notably, legislation has already been passed to limit the Supreme Court's authority to overturn legislation based on the grounds of "reasonableness."

Additionally, alterations to the appointment process for judges have been proposed, although recent indications suggest a shift away from giving an automatic majority to the ruling coalition in the selection committee. Fitch views these legal changes with a cautious eye, as any weakening of institutional checks and balances could lead to adverse policy outcomes or dampened investor sentiment.

The rating agency also addressed potential risks associated with the changes to the governance structure. While the impact on Israel's high-tech sector and capital outflow seems limited for now, Fitch warns that further steps to reduce institutional checks and balances might negatively affect the nation's credit profile.

Fitch's growth projections foresee a moderate pace, with an anticipated GDP growth of around 3.1% in 2023 and 3.0% in 2024. This stands below the Bank of Israel's estimate of approximately 3.8% annual growth. The slower growth outlook is attributed to global economic constraints and monetary tightening. Notably, Israel's labor market remains robust, but there is a shortage of personnel across sectors, including high-tech.

Furthermore, Fitch noted a decrease in funds raised in the local high-tech sector, partially attributed to global trends alongside the uncertainty stemming from legal system changes. Despite this, Israel's high-tech sector's diversity and maturity provide resilience against shocks, although certain segments may face limited financing options.

The agency expects a slowdown in inflation due to falling import prices and decreased local inflation as consumption and investment moderate. This soft landing for the economy would involve cooling in the high-tech sector and moderation in real estate price increases.

Israel's budget targets a government deficit of approximately 1% of GDP in 2023. However, declining tax receipts hint at a potential deficit closer to 1.6% in 2023 and 2.8% in 2024. These adjustments reflect a return to long-term trends after an exceptional year in 2022.

Despite these fiscal shifts, Fitch anticipates Israel's government debt-to-GDP ratio to stabilize around 59% from the end of 2023, maintaining the nation's strong financing capacity.

The credit rating acknowledges the security risks Israel faces, with periodic conflicts demonstrating the nation's resilience. Ongoing tensions, particularly related to Iran's nuclear program, are acknowledged as risks but are not deemed an imminent threat to the nation's credit profile.

Recent clashes with Palestinians and Israeli Arabs have highlighted underlying tensions, which could be exacerbated by government composition. The weakened Palestinian Authority and increasing Israeli intervention in certain areas contribute to this tension. Additionally, unresolved issues in the West Bank and potential conflicts with Hezbollah and border incidents are mentioned as ongoing concerns.

In summary, while Israel's economic strengths are underscored, its credit profile is influenced by a mixture of economic factors and potential political instabilities. The assessment balances between Israel's diversified economy and its vulnerabilities, particularly in the face of security risks and potential changes in governance structures. Fitch's affirmation of Israel's credit rating at A+ with a stable outlook reflects the complex interplay of these dynamics.

The offices of the Prime Minister and the Minister of Finance breathed a sigh of relief - and rushed to attack, while only referring to the bottom line and ignoring the warning line of the rating agency.
In a joint statement by the two, it is written: "The confirmation of Israel's credit rating at the A+ level and the leaving of the forecast at "stable" prove what we have been saying all the time - Israel's economy is strong, stable and solid. Israel is good for business. Those who invest in Israel - benefit.
The responsible and conservative policy pursued by Prime Minister Netanyahu and Finance Minister Smotrich, which includes, among other things, a budget with a low deficit target, wage agreements and a free market policy - proves that Israel's economy is diverse, has high added value and strong external financial indicators - so states the report.
When you look at the true data of the Israeli society, you get a picture that is the opposite of what the news channels are trying to create night after night. In front of the false scare campaigns there are excellent data and we will do everything to keep it that way.



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