Fitch: Israel’s Credit Rating May Rise if Debt Burden Dips

(Reuters) -

Israel’s credit rating could be raised within two years if its debt burden and budget deficit keep falling, an analyst at Fitch Rating said after the diminishing prospect of war with Iran led Fitch last week to upgrade its outlook for Israel to “positive” from “stable.”

Fitch rates Israel’s foreign currency as “A,” a notch below Standard & Poor’s rating of “A+”.

Paul Gamble, the primary analyst for Israel at Fitch, said Fitch now has two years to either raise Israel’s rating or move the outlook back to stable.

“One trigger for an upgrade is that you get a consistent narrowing of the deficit,” he told Reuters Thursday. “Things are on the right track but we’re not there yet.” Fitch expects Israel’s budget deficit to reach 3.4 percent of gross domestic product in 2013 — believing one-off effects will bring it in well below the 4.3 percent government target.

Fitch forecasts for the deficit are 3.2 percent of GDP in 2014 and 2.8 percent in 2015 — a bit higher than the Finance Ministry’s targets.

The government’s decision last week to cancel a planned income tax rise in 2014 should not harm government finances as long as budget cuts offset that, he said.

“This measure would be beneficial for economic growth and should strengthen popular support to get the deficit down,” Gamble said. More policy steps would be needed to get the deficit to the target of 2.5 percent in 2015, Fitch said.

Although Israel opposes the Iran deal, Fitch said it “assumes there is no prospect of an Israeli attack on Iranian nuclear facilities over the six months for which the deal runs.”

The start of natural gas production in Israel is another positive.

S&P in September affirmed Israel’s sovereign rating and “stable” outlook, while Moody’s Investors Service in August maintained an “A1” rating and “stable” outlook.