Fitch Ratings affirmed on Monday Israel’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A+’ with a Stable Outlook.
The international credit rating company emphasized the strong elements of Israel’s economy, including a diverse and solid economy, strong external accounts, and a strong institutional structure. According to the company, the main weaknesses of the credit rating are a relatively high debt burden, security risks, and political instability.
The company predicts that economic growth will be 4.6% in 2022 and 3% in 2023, against the background of the slowdown in the global economy, the effect of inflation on consumption, and labor shortages in some sectors, with the high-tech sector continuing to demonstrate strong performance.
However, in the company’s opinion, political instability may limit the continued growth of investment in education and infrastructure required to improve productivity. Also, the company estimates that inflation at the end of the year will be 4.1% in light of the global rise in prices and the increase in housing prices. The rating company notes that the labor market in Israel has returned to its pre-Corona period, which may contribute to pressure on prices in the medium term.
The company highlighted the moderating effect of the gas agreements on price levels in Israel.
Referring to the fiscal framework, the company expects a low deficit rate of 0.8% in 2022 – this is as a result of extraordinary growth in the state’s revenues, and a deficit range of 2-3% of the GDP in 2023-2024, in line with countries rated A.
Fitch expects that a significant reduction will be recorded in the debt burden, when the company believes that the debt to GDP ratio will be 63.9% at the end of the year, compared to 68.8% last year. This is thanks to high nominal growth, negative real interest and low deficits.
The rating company predicts that the debt to GDP will decrease to a rate of approximately 61% by the year 2024.
In its announcement, the company again indicated the security threats as a factor weighing on the credit rating. At the same time, the Israeli economy has shown resilience in the face of geopolitical events.
Similarly, S&P has Israel at a AA- Stable rating, and Moody’s has ranked Israel with an A1 positive ranking.
Minister of Finance Avigdor Liberman stated that “Fitch’s announcement confirming Israel’s rating is an expression of confidence in the Israeli economy, especially in light of the recovery from the Corona crisis, the low deficit and high growth in the state’s revenues.”
Accountant General, Yehli Rotenberg added that “the rating in a period of uncertainty in the global economy is a testimony to the strong performance of the Israeli economy which is reflected in the growth data, the external accounts and the fiscal data.”