The Ministry of Finance Accountant General Division spoke today about the decision of international ratings agency Moody's to cut Israel's credit rating from A1 to A2 and lower the credit outlook from stable to negative. The Ministry of Finance received the report last Wednesday and appealed against the decision but it was dismissed and the report was published on Friday as scheduled.
Accountant General Yali Rothenberg spoke to journalists today about the efforts of the division to change the decision. He said, "The main argument in the appeal was that sufficient weight was not given to Israel's resilience from the effects of the war and this can be seen in the key data." He stressed that although Israel was hurt and shaken following the October 7 massacre, it is expected to strengthen economically and return to pre-war levels. "Israel is repaying its debts and is not at risk of defaulting on what it owes."
The Accountant General mentioned that during previous geopolitical events like the Covid crisis and past military operations, Israeli economic growth fell but then, "Subsequently rose and returned to strong growth." Accordingly, the fiscal deficit, which is expected to be 6.6% in the coming year is expected to fall next year and changes have been made in the state budget to adjust government spending because of the war.
The Accountant General told journalists that he appreciates Moody's but they disagree on the decision to cut the rating with a negative outlook. He said, "We did everything that we could to convey to Moody's representatives that this is not the time to cut this type of rating. It is not in line with the economy's data and we filed an appeal on the decision and the petition was dismissed. The basis of the appeal was the fact that the State of Israel has demonstrated strong resilience over the years after crisis events. Since the massacre, Israel has been at war on various fronts and the economy is coping with this while supporting the war."
He added, "We do not ignore the geopolitical events, but we think that too much weight has been given to theoretical scenarios that are not certain to occur. The intensity of the war in Gaza has been reduced, the number of reservists has fallen and the scale of rocket fire has decreased. As the war in Gaza continues, the rationale for expanding military activity is decreasing. Escalation in the north is not a scenario that is expected to happen."
The Accountant General reminds Moody's that Israel's economic data remains strong. "Israel's current account remains strong, the amount of foreign exchange reserves held by the Bank of Israel is high, the markets are liquid and the country has high accessibility to international markets. In addition, the debt-GDP ratio is still low in historical and international terms. Israel has proven in the past that it repays its debts."
The Accountant General was asked about Minister of Finance Bezalel Smotrich's remarks on Saturday evening, when he said, ""The announcement by Moody’s of the rating downgrade contains no serious economic arguments, and is entirely a political manifesto based on a pessimistic and untenable geopolitical world outlook reflecting a lack of faith in the military and national strength of Israel, and apparently lack of faith in the righteousness of its cause against its enemies."
Rothenberg replied, "I do not give grades to the Minister of Finance and the Minister does not consult with me before making his comments."
Published by Globes, Israel business news - en.globes.co.il - on February 12, 2024.
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