International ratings agency S&P sees "increased medium term fiscal risk" for Israel if the upcoming elections are also inconclusive. S&P did not indicate whether it would actually change Israel's rating or cut its rating forecast (the step before a rating cut) in the event of another political stalemate following the March 23 elections.
In comments after the dissolution of the Knesset, S&P stated that it did not expect any change in Israel's budgetary policy in the short term as a result of the collapse of Israel's ruling coalition but it is concerned that the political instability is being perpetuated.
S&P wrote, "Israel has already gone through three inconclusive elections over the past 18 months. The unity government formed in April between Prime Minister Benjamin Netanyahu and Blue & White leader Benny Gantz was characterized by many disputes between the partners and constantly repeated postponements of the deadline for the 2020 state budget..….. although there is nothing new about the political tensions in a country like Israel which has high religious and ideological polarization, this time the political uncertainty comes together with the Covid-19 pandemic and the trial of Prime Minister Benjamin Netanyahu."
S&P warns on the unpredictability of the March election results and the high level of uncertainty over the coming few months.
S&P also warns about the rise in government debt, which could influence Israel's AA- rating. Following the Covid-19 crisis, Israel has raised public debt to 73% of GDP, which was the ratio a decade ago. S&P expects Israel to already begin reducing the debt in the second half of 2021 although S&P believes Israel's ability to do this will be compromised if the upcoming elections are inconclusive.
Published by Globes, Israel business news - en.globes.co.il - on December 24, 2020
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