International credit rating agency Moody's has affirmed Israel's sovereign rating at A1, and upgraded its rating outlook to "Positive", thanks to Israel's strong fiscal performance and the robustness of its economy.
The outlook upgrade means that Israel's rating could be raised at some point within the next two years. In July 2018, Moody's upgraded Israel's rating outlook to "Positive", but in April 2020 it revised it to "Stable" because of the outbreak of the coronavirus pandemic.
As reasons for the outlook upgrade, Moody's cites structural economic reforms by the current Israeli government designed to deal with long-term challenges faced by the Israeli economy, and the economy's rapid recovery and strong fiscal performance, as manifest in the decline of the debt:GDP ratio and the reduction in the fiscal deficit to an extent significantly beyond initial forecasts.
Last week, Minister of Finance Avigdor Liberman reported that the government deficit had fallen to 1.6% of GDP in March from 2.2% in April.
"The affirmation of the ratings at A1 balances the economy's solid growth prospects and resilience against the government's relatively high public debt burden. Also, the government's debt affordability metrics are somewhat weaker than peers," Moody's announcement says, but the agency notes, "The government coalition has been more stable and cohesive than initially thought, but has now lost its small majority and it remains to be seen whether it will remain in power to implement its comprehensive reform agenda alongside prudent fiscal policies. At the same time, Israel is significantly less affected than other countries by the conflict between Russia and Ukraine, also thanks to the country's energy independence."
Moody's expects Israel fiscal deficit for 2022 to be 3.4% of GDP, which compares with a previous forecast of 3.9%. The debt:GDP ratio is seen falling to 64% by 2024.
Published by Globes, Israel business news - en.globes.co.il - on April 10, 2022.
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