Moody’s Holds Israel’s A1 Rating, Pans Israel’s ‘Divisive Politics’

Moody’s held its rating for Israeli government bonds at A1 with a stable outlook on Monday, but noted that ongoing political disharmony adversely affects financial functioning.

“Spillovers from the divisive political scene and regulatory hurdles” are preventing reforms and constraining growth in the Israeli economy, Globes quoted Moody’s analyst Kristin Lindow as saying.

“Last year, the government operated for 11 months without a budget due to internal coalition disagreements, which were finally resolved in November. In the interim, the government was forced to keep spending at the previous year’s monthly levels. Although this was not contractionary per se, spending was lower than the fiscal rule would have allowed had a budget been implemented, resulting in a lower-than-planned fiscal deficit,” Lindow’s report notes.

The ratings firm did not overlook Israel’s disappointing first quarter growth figures released by Israel’s Central Bureau of Statistics last week showing that the economy grew at an annualized rate of only 0.8% during the quarter. This was down from 3.1% in the fourth quarter of 2015 and well below expectations.

Lindows’ final analysis was positive, however, justifying the A1 stable.

“Thus far, despite the economy’s recent underperformance, the fiscal position remained strong and the government debt-to-GDP ratio has continued to improve.”