Business information provider Dun and Bradstreet has downgraded Israel's risk rating for May by 1 quartile from DB2d to DB3a, because of the deteriorating security situation.
Dun and Bradstreet announced the downgrade in its latest “International Risk and Payment Review” for Israel.
The report says that political risk has increased following Israel's large-scale incursion into the West Bank from end-March. “Latest developments indicate that the violence will continue in the short to medium term. Israel's military action has increased anti-Israel sentiment among the Palestinians and, as such, increases the likelihood of Palestinian terrorist activity continuing. This likelihood is strengthened by the PA's inability to stop the action of militant groups.”
“In response, the Israelis will continue to retaliate, with the actions of the last few months indicating that Prime Minister Ariel Sharon is not willing to negotiate with the PA leader, Yasser Arafat...”
Dun and Bradstreet says the uncertain political outlook is compounded by the fact that the US has been unable to stop the violence. “Meanwhile, the violence will continue to have a detrimental impact on the economy. Along with its effect on certain sectors, such as tourism, the escalation of the violence and the global downturn in the high-tech sector has resulted in reduced capital flows to Israel.”
Subsequently the shekel has continued to depreciate, weakening from NIS4.42/$ at the end of 2001 to NIS 4.78/$ in mid-April. Inflation expectations will rise as the currency depreciates, prompting the central bank to increase interest rates. The continued violence will also put pressure on the budget- in early April Sharon approved a NIS 2 billion expansion in the defense budget,” the report concluded.
Published by Globes [online] - www.globes.co.il - on 14 May, 2002