"Israel's present political and financial shocks do not pose an immediate threat to the country's risk profile, including its A1 rating and stable outlook," says Moody's Investor Services in a special report.
Moody's Israel analyst Joan Feldbaum-Vidra adds, "Our main concern for the credit rating is fiscal, given the unknowns over the cost of the military conflict with Hamas in Gaza - Israel is the only A-rated issuer with an active state of war on its territory - and the ability of the government's fiscal intervention program to deal with the credit crunch and difficult conditions in Israel's capital markets."
Feldbaum-Vidra noted that Israel's continued rating stability is delicately poised, driven by the expectation that the fiscal impact of the shocks will be relatively short in duration, paid for by savings in other areas, and, most importantly, that liquidity will remain fully available. The government's ample access to credit is a crucial underpinning for the country's high ratings given its susceptibility to shocks. She said, "The large government debt along with the difficult security situation has capped Israel's government bond ratings at A1."
Israel's current "Stable" outlook can be maintained if the interruption in the favorable debt trends caused by the near-term slowdown in growth, higher defense costs, and the price tag for capital market interventions will be short-lived and not exaggerated in size.
Moody's upgraded Israel's rating to A1 in April 2008, partly on an assessment that the structural decline in the government's debt burden would continue.
Feldbaum-Vidra said, "Moody's central scenario is for Israel's government debt-to-GDP ratio to temporarily reverse direction, moving back upward from the current 80% level, before returning to a virtuous cycle subsequently. Even in this period of severe global uncertainty, this is consistent with Moody's practice of maintaining its ratings through temporary dislocations."
Feldbaum-Vidra cautioned that any change in Moody's assessment of Israel's shock-absorption capacity would drive a rating adjustment. "The fact that Israel has weathered severe shocks in the past increases our level of comfort in its high rating, although we do remain concerned about the 'untested waters' now being confronted," she pointed out.
"Should any development - external or local - bring that assumption into question enough to impair Israel's debt repayments capacity in a meaningful and durable way, its A1 rating would be likely to come under downward pressure."
Published by Globes [online], Israel business news - www.globes-online.com - on January 8, 2009
© Copyright of Globes Publisher Itonut (1983) Ltd. 2009