Here's a little piece of advice to anyone losing sleep over the fear that the rating agencies will cut Israel's credit rating. There are enough countries in the world in worse condition than Israel, and the rating agencies have their work cut out monitoring them. Anyone who wants to get a idea of what it means to be a country that suffers a rating cut can look at the situation in Latvia and Ireland, two countries coping with economic crises and with sharp criticism from S&P, Moody's, and Fitch.
In Latvia, GDP is shrinking at an annual rate of 20%, the government has been forced to announce a 10% spending cut, there is constant pressure on the exchange rate, and a feeling that the country will not be able to meet its obligations. In Ireland, the fear is that the government will have to fork out billions of euros to save a failing banking system.
Does any of this recall Israel? For the time being, it looks as though the country's rating doesn't worry anybody. That doesn't mean there are no concerns, or doubts about economic policy. It's a fact that, on the market, yields on government bonds are rising. But it’s a rise that can still be called moderate. There's a long way from that to a rating cut.
Problems over Israel's credit rating could yet arise. It's certainly conceivable that one of the major agencies will decide to make an early downgrade, but even then, the decision itself will be released only after the intention has become clear, giving the government and the market enough time to prepare for the expected step.
Therefore, to talk about the credit rating now is to anticipate the rating agencies announcements by several months. It may be that in January or February it will become clear that Israel's economy is limping badly, and the Ministry of Finance will demand another round of budget adjustments. Even then, it's not certain that it will be wise to anticipate a rating downgrade, but the conclusion must be that, for now, the subject is really not on the agenda.
Published by Globes [online], Israel business news - www.globes.co.il - on June 9, 2009
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