Moody’s keeps Israel’s A1 credit rating despite pandemic, ‘polarized politics’

Credit agency highlights offshore natural gas reserves and tech sectors, but says ‘political system weighs on fiscal policy effectiveness’

View of the Tel Aviv Stock Exchange. September 09, 2020 (Miriam Alster/FLASH90)
View of the Tel Aviv Stock Exchange. September 09, 2020 (Miriam Alster/FLASH90)

A leading rating agency has left Israel’s credit rating unchanged at A1, expressing confidence in the country’s economy despite two punishing coronavirus lockdowns and a “polarized political system.”

Moody’s Investor Services also kept the outlook on Israeli government debt at stable, the ratings firm said in a statement Wednesday.

“The current rating reflects Israel’s robust medium-term growth potential, strong external position and highly credible institutions, which are balanced against a combination of longer-term demographic challenges and persistent geopolitical risks,” the agency said. “These strengths will help the credit profile to withstand the severe but temporary crisis arising from the coronavirus outbreak.”

Moody’s cited Israel’s offshore natural gas reserves and tech sectors as positives, but noted that the “polarized political system weighs on fiscal policy effectiveness” and that the country’s debt burden is expected to only gradually decline.

Israel’s government has failed repeatedly to pass a state budget, leaving the ruling coalition teetering near collapse.

The report called Israel “economically resilient,” but said it would be challenged by the unpredictability of the coronavirus pandemic and the ongoing conflict with the Palestinians were seen as risks for a possible future downgrading.

View of closed shops in the Rehovot Mall, on October 19, 2020 (Yossi Aloni/Flash90)

An A1 score is the fifth highest rating issued by the company, which provides investors with guidance regarding countries’ abilities to pay back bond debts.

There had been concerns that credit agencies would look negatively upon the turmoil within the Finance Ministry and Israel’s failure to pass a state budget.

A number of high-profile resignations in the Treasury have stemmed from ongoing disagreements over how to stem Israel’s coronavirus infection rate while attempting to minimize damage to the economy.

Additionally, Israel has been without a state budget since 2019 and could end 2020 without one, due to an ongoing feud between Likud and Blue and White over whether the budget should include 2021 as well.

People shop at the Mahane Yehuda market in Jerusalem on October 22, 2020 (Olivier Fitoussi/Flash90)

In April, Moody’s lowered its outlook on Israeli debt, citing a “deterioration” in the budget deficit that has been made worse by the COVID-19 pandemic.

The coronavirus pandemic has caused unemployment in Israel to surge to record levels this year, and many small businesses have suffered critical damage.

As of Wednesday 969,107 Israelis were unemployed in total — almost a quarter of the workforce, which numbers some 4 million — including 616,327 who were furloughed.

In September, the OECD forecast that Israel’s economy is expected to contract 6 percent this year.

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