Moody’s international rating agency announced Friday that Israel will maintain its high A1 credit ranking, following the Israeli economy’s strong fiscal performance.
The rating company upgraded Israel’s credit rating forecast from “stable” to “Positive,” and decided to leave the rating at A1 at this stage.
Moody’s noted that the factors for raising the credit rating forecast are the promotion of structural reforms by the current government, designed to address the long-term challenges of the Israeli economy, as well as the rapid recovery of the economy and optimal fiscal performance, and a significant reduction in the government deficit beyond initial forecasts.
In addition, the reform of the designated bonds, which is expected to lead to savings in government financing costs, was highlighted as a positive factor.
Moody’s announcement states that the performance of the Israeli economy outdid forecasts due to high tax revenues. This is reflected in the reduction of the government deficit by 7% of GDP within one year, one of the strongest performances in the world.
The company expects that the deficit will stand at 3.4% at the end of 2022, a rate lower than the original target of 3.9%. It was noted that the debt-to-GDP ratio began to decline last year, and the company expects it to reach 64% by 2024.
The company also noted that although the political environment is polarized, there is broad agreement on economic and fiscal policy.
Minister of Finance Avigdor Liberman welcomed the updated rating forecast and said that “Moody’s decision comes against the background of high growth figures for two decades, and an unemployment rate that returned to its pre-Corona status. This was made possible thanks to a responsible fiscal policy while providing an appropriate response to the needs of the economy and promoting structural reforms that constitute engines of growth for the coming years.”
A country’s credit rating indicates the economic strength and security it will meet in repaying its loans. The high rating enables the government to raise funds under better terms.
In February, Fitch Ratings affirmed Israel’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A+’ with a Stable Outlook.
This positive news about Israel’s economy came hours after the Central Bureau of Statistics announced that Israel’s Gross Domestic Product (GDP) grew by 8.1% in 2021, after shrinking by 2.2% in 2020 due to the COVID-19 pandemic. The growth figure for 2021 beat the Bank of Israel forecast of 7.5%.
Israel’s GDP grew 16.6% on an annualized basis in the fourth quarter of 2021, after growing at only 2.4% in the third quarter.
The GDP per capita grew by 6.3% in 2021 after shrinking by 3.9% in 2020. GDP per capita rose by an average of 5% in OECD countries in 2021.
Private consumption in Israel rose 11.7% in 2021, after falling 9.2% in 2020. Private consumption per capita in 2021, rose 9.9%, very close to the Bank of Israel forecast of 10%.