The Israeli Finance Ministry released a statement after Fitch Ratings released their position on Israel. Fitch Ratings affirmed Israel’s Long-Term Foreign-Currency Issuer Default Rating (LTFC IDR) at ‘A+’ with a Stable Outlook.
Minister of Finance, Bezalel Smotrich said in response, “Israel’s economy is strong and with God’s help it will remain so. Last week, the government approved an excellent, responsible, restrained and growth- and infrastructure-oriented budget, and despite rising global inflation, we are succeeding in fortifying the State of Israel as an island of stability, a growing economy, and an excellent place for investment. The credit ratings prove that we are taking all the right steps to move the State of Israel forward.”
Some of the key rating drivers mentioned in the report are:
Rating Strength and Weaknesses: Israel’s ‘A+’ rating balances a diversified, resilient and high value-added economy and strong external finances against a high government debt/GDP ratio, elevated security risks and a record of unstable governments that has hindered policymaking.
Well-Positioned to Resist Downturn: Fitch expects Israel’s GDP growth to remain robust at 2.9% in 2023 after 6.4% in 2022, despite global challenges and monetary policy tightening that will hit private consumption and investment. Growth will be supported by continued exports from the high tech and the defence industries, strong population growth and growing government spending once a budget is in place. We project growth to return to its long-term potential above 3% in 2024 and 2025.
Inflation to Peak: We project inflation to peak in 1Q23 and to gradually recede to around 3% by the end of the year. The deceleration will be underpinned by the soft landing of the Israeli economy, with the cooling down of the frothy high-tech sector that has driven strong growth in private-sector wages. We also expect real estate price growth to moderate under the combined effect of the high prevalence of a variable rates component in mortgages and a higher level of construction. Banks are well-capitalised and -provisioned and in a good position to absorb a rise in non-performing loans (NPLs).
Other key rating drivers:
Pressure on BOI Independence Contained
Budget Deficits to Return
Judicial Reform Could Weaken Credit Profile
Geopolitical Risks Remain
Strong External Position
The full report can be read at Fitch.