S&P affirms Israel’s strong credit rating, despite pandemic-battered economy

Ratings agency holds Jewish state’s relatively high AA- classification, with a stable outlook, citing robust financial system, local savings and access to capital markets

View of the Tel Aviv Stock Exchange, December 25, 2018. (Adam Shuldman/Flash90)
View of the Tel Aviv Stock Exchange, December 25, 2018. (Adam Shuldman/Flash90)

Standard & Poor’s, the provider of independent credit ratings, on Friday affirmed Israel’s position at a relatively high AA- rating, with a stable outlook, despite the country’s battered pandemic-battered economy.

The ratings are an indication of the credit-worthiness of a nation that issues debt and how likely it is to repay the debt.

The company cited Israel’s robust economy, flexible monetary policy, relatively strong pool of local savings and access to domestic and international capital markets.

The two main points against Israel’s credit rating were its relatively high level of debt and geopolitical risks.

The firm also noted the normalization agreements Israel signed with the United Arab Emirates and Bahrain, which it said could lead to economic cooperation, increased commerce and better security for the three countries.

S&P estimated that Israel’s economy will shrink by five percent in 2020 due to the pandemic, its biggest drop in decades, but will recover over 4.5% in 2021, the Globes business daily reported.

Finance Minister Yisrael Katz hailed the rating, saying, “The decision by S&P to keep the State of Israel’s credit rating at AA-, with a stable outlook, is a great expression of trust in Israel’s economy and a mark of praise for the State of Israel. Israel is in a good position in relation to many countries in the world that are struggling with the coronavirus crisis.”

Prime Minister Benjamin Netanyahu welcomed “another impressive vote of confidence in the economic policy that we have been leading.” He noted that Standard and Poor’s has lowered its credit rating for other developed countries during the pandemic.

Last month, the Moody’s rating agency kept Israel at an A1 stable rating, its fifth-highest, expressing confidence in the country’s economy despite two punishing coronavirus lockdowns and its contentious politics.

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.

The strong ratings for Israel come despite the economic damage caused by the coronavirus pandemic and ensuing lockdowns, and the government’s failure to pass a state budget.

A woman walks next to a closed store at Jaffa Gate in Jerusalem’s Old City on October 13, 2020, during a nationwide lockdown. (Nati Shohat/Flash90)

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

As of late last month, some 969,000 Israelis were unemployed in total — almost a quarter of the workforce, which numbers some 4 million — including some 616,000 who were furloughed.

Before Israel recorded its first coronavirus case in February, the unemployment rate was around three percent.

Israel’s government has failed repeatedly to pass a state budget, leaving the ruling coalition teetering near collapse. Israel has been without a state budget since 2019 and could end 2020 without one, due to an ongoing feud between the Likud and Blue and White parties.

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

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.

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

A sovereign credit rating is the grade given to nations by rating firms — including S&P, Moody’s Investors Service and Fitch Ratings — and indicates the risk level for investors who buy bonds issued by these governments, and the feasibility of them defaulting on future payments. The higher the risk, the greater the interest nations need to pay when they seek to raise money from investors through the issuance of government bonds.

A low rating makes it harder and more expensive for a nation to raise money on international markets to finance its expenses. S&P is considered the largest of these big three credit-rating agencies.

S&P upgraded Israel to a rating of AA-, with a stable outlook, in August 2018, the highest ever rating for Israel, and S&P’s fourth-highest rating.

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