The international credit rating company Fitch today (Wednesday) confirmed the credit rating of the State of Israel at the level of A + with a stable forecast. This is the first rating company to publish Israel's rating since it became clear that a state budget for 2020 and 2021 had not been approved and that additional elections would be held.
Moods and S&P also recently refrained from downgrading Israel, which was surprisingly good since Israel does not have a budget, the unemployment rate is high and the deficit in 2020 amounted to 11.7% and was among the highest in the world relative to GDP.
According to the company, Israel's credit rating balances strong external accounts, a diversified economy with high added value and institutional resilience, and a government debt-to-GDP ratio that is still high relative to reference countries and ongoing political and security risks.
Analysts expect a real increase in GDP of about 5.4% in 2021 and 4.1% in 2022, after a contraction of 3.9% in 2020 according to the rating company's estimates, and a stabilization at a growth rate of close to 3%. Scenario The company's base assumes that economic restrictions will be lifted, vaccinations will continue at a high pace in the first half of 2021 and foreign tourism will be renewed to a limited extent in the second half of the year.
In addition, the rating company states that there are risks to the forecast in light of possible waves of illness and in light of the timing and effectiveness of the vaccination campaign, both in Israel and around the world. However, according to them, Israel's diverse and value-added economy has proven to be resilient to repeated shocks.
The statement said that there was a deterioration in Israel's fiscal situation due to the plague, and the continuing political volatility complicates the prospect of fiscal adjustments. The company expects the government deficit to remain high in 2021, about 9% of GDP, after 11.7% in 2020, and to shrink to 4.3% of GDP in 2022.
According to the company's forecast, the public debt-to-GDP ratio is expected to be about 76% in 2020, rising to about 80% in 2023. This ratio is higher than the estimated median figure for 2020 for A-rated countries. However, analysts note that the country's financing conditions have remained favorable. A deep and liquid domestic market, supported by the Bank of Israel's government bond purchase program (about 6.3% of GDP), kept the nominal yield for 10 years well below 1% for most of the year.
According to the company's publication, Israel's external accounts remained strong. Israel has a current account surplus every year since 2003, and a larger contraction in import prices compared to exports has led to an increase of close to 4% of GDP in 2020. Fitch expects Israel to continue to have a current account surplus as growth in services exports remains strong. Net foreign investment also contributes to a 38% jump in foreign exchange reserves in 2020 to the $ 173 billion area (about 17 months of external payments). Israel's status as a net external lender is estimated to have strengthened to 58% of GDP at the end of 2020, a figure significantly higher than the medians of A and AA ratings.
The company's analysts expect that Israel's credit rating will continue to be limited by security risks, but Israel's credit profile has shown resilience to periodic conflicts. The "Abraham agreements" made the relations between Israel and several Arab countries official and emphasized the common priorities for dealing with the situation with Iran, and it remains to be seen whether the agreements will reduce the geopolitical risks facing Israel. Fitch assumes there will be no breakthrough in the peace process with the Palestinians within the forecast range.
The Accountant General, Yahli Rotenberg, stated: "The confirmation of the credit rating of the State of Israel in a period of uncertainty and global crisis reflects confidence in the diverse Israeli economy and the government's financial and fiscal ability to deal with the consequences of the crisis."
The following announcements by the three companies are expected only after the Knesset elections in the second quarter of this year.