Impressed With Economy, Budget, Moody’s Again Raises Israel’s Credit Rating

For the second time this year, Moody’s credit rating service has raised Israel’s credit rating. Already at an A1 level, the latest increase places the outlook on government obligations from “stable” to “positive.” The change means that Israeli banks and institutions borrowing on international markets will have an easier time getting credit, at easier terms.

According to a note by the agency, the change was due to better performance in the Israeli economy which “will further consolidate the shock absorption capacity of the government’s balance sheet” if the world economy sours, as well as an “increasingly resilient economy with an expanding high-tech sector, increased energy self-sufficiency and a strengthening external position.” In addition, the note says, “the affirmation of the A1 ratings balances Israel’s resilient economy, robust external position, strong institutional framework and favorable fiscal dynamics against a combination of longer-term demographic challenges and material geopolitical risks. The outlook horizon will allow Moody’s to assess whether that balance will continue to shift in Israel’s favor.”

Another factor that impressed the agency, said the note, was the fact that the government was keeping its balance sheet under control – and is doing a far better job of it than most of the world. “The general government debt ratio has declined by more than 10 percentage points since the last upward move in Israel’s credit rating in 2008 to around 60 percent of GDP, reflecting in part a prudent budgetary framework and a robust growth performance. This contrasts sharply against trends in many other advanced country peers both before and after the global financial crisis,” according to the note.

In general, Moody’s said, the Israeli economy “has shown resiliency to a range of domestic and external shocks over this period, including domestic unrest, military conflict, and the global financial crisis, without a single year’s decline in real GDP. Notably, Israel’s economy has proven more resilient than regional peers which experienced sharp contractions during the global financial crisis, which is reflected in lower growth volatility.”

The economy can be expected to grow an average of 3.4 percent annually through 2022, Moody’s said, “outpacing that of most advanced industrial economies into the next decade, while the external position continues to strengthen, helping to insulate Israel’s open economy to future shocks. Moody’s expects the completion of the first phase of development of the Leviathan gas field and the start of production with associated exports of natural gas from the end of 2019 will bolster growth, strengthen the external position, continue to improve Israel’s energy independence and, over time, support government revenues,” according to the agency.