S&P says Israeli political instability not affecting credit rating… yet

Ratings agency warns ‘fiscal risks could build’ if continued gridlock in Knesset hampers government’s ability to rein in spending

Israelis at the art market on Nahalat Binyamin Street in Tel Aviv, on March 30, 2021. (Miriam Alster/Flash90)
Israelis at the art market on Nahalat Binyamin Street in Tel Aviv, on March 30, 2021. (Miriam Alster/Flash90)

Though Israel’s state of political instability seems poised to continue, the country’s fiscal situation is unlikely to be impacted in the immediate term, the S&P credit rating agency said in a memo Tuesday, indicating it will not downgrade the Jewish state’s rating.

S&P warned, however, that if the political uncertainty persists, the deadlock in the Knesset could make it more difficult for policymakers to reach consensus on economic issues.

“Fiscal risks could build if finding consensus on a balanced fiscal policy proved difficult as a result of persistently fragmented domestic politics,” the bulletin said.

The agency also said it expects growth to recover soon and lauded Israel for having sound debt policy, which it said continues to justify its rating of AA-/Stable/A-1+. But it warned a future government will need to put a greater focus on “budgetary consolidation” beyond this year to prevent a further rise in the debt load.

The bulletin was issued after last week’s elections — the fourth in two years — ended inconclusively, with a fifth round seen as a growing possibility due to both Prime Minister Benjamin Netanyahu and his rivals’ lack of a clear path to forming a government.

Finance Minister Israel Katz at Tel Aviv’s Ichilov Medical Center on December 20, 2020 (Miriam Alster/Flash90)

Finance Minister Israel Katz called the document an “expression of confidence” in Israel’s economy.

“Now we need to stabilize the political system and advance laws and reforms that will jumpstart the economy and economic growth,” Katz wrote on Twitter.

In December, a senior S&P director told The Times of Israel that if the political instability hampers Israel’s ability to rein in spending this year, the country was at “real risk” of a ratings downgrade.

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