Moody's warns that geopolitical developments are the main risks to its rating for Israel if they are seen to pose heightened challenges to Israel's economic stability. Another risk if again public finance metrics deteriorate significantly. Moody's reiterated its A1 ratings on domestic and foreign currency government bonds, with a "Stable" outlook.
The rating is "underpinned by the country's high levels of economic, institutional and financial strength and moderate event risk. The Israeli economy is resilient and dynamic, and the macroeconomic policy framework is coherent. The high-tech exports-based economic model underpins favorable medium- to long-term growth prospects, though it is subject to cyclical fluctuations in world trade."
Moody's notes, "The deterioration in the government's debt metrics was relatively limited during the global crisis, and the narrowing budget deficit represents evidence that the ongoing remedial measures are taking effect. The debt to GDP ratio, for example, was already fractionally below its pre-crisis level by the end of 2010. Recent political uprisings in the Middle East and North Africa have highlighted geopolitical risks in the region, unsettling longstanding relationships that had provided Israel with a degree of stability for many years. A moderate assessment of event risk reflects not only Israel's geopolitical challenges but also its track record in coping with them."
Looking ahead, Moody's says, "The fiscal rule that became effective with the 2011-12 budget is geared towards further gradual reduction of the debt to GDP ratio to the 60% level, however, a more ambitious goal would help to mitigate the increased cyclicality of the export-dependent economy as well as political event risk.
If geopolitical risks greatly ease, or if the government's debt levels are substantially further reduced, Moody's might consider upgrading Israel's long-term ratings. Increased competition that would derive from a reduction in the concentration of ownership of the economy would be another positive factor for an upgrade.
Published by Globes [online], Israel business news - www.globes-online.com - on December 29, 2011
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