S&P affirms Israel ratings with stable outlook

Standard & Poor's  picture: Reuters

S&P was widely expected to follow Moody's in downgrading Israel's rating outlook, but its review is fairly upbeat.

International credit rating agency Standard & Poor's (S&P) has affirmed its long- and short-term sovereign ratings on Israel at AA-/A-1+, with a stable outlook.

"We forecast Israel's economy will contract by 5.5% this year due to the hit to activity from the COVID-19 pandemic. As a consequence, we project that the general government deficit will widen to over 10% of GDP this year, with net general government debt increasing to just under 71% of GDP at end-2020. Nevertheless, strong macroeconomic fundamentals and high monetary flexibility should allow Israel to absorb the shock, while the large high-tech sector should aid economic recovery. We are therefore affirming our 'AA-/A-1+' sovereign ratings on Israel," S&P says in its announcement.

On the rating outlook, S&P says, "The stable outlook on Israel balances downside risks from the COVID-19 pandemic against Israel's resilient economy and its strong external position. We project that Israel's net external asset position will remain at about 40% of GDP through 2023, providing the economy with substantial buffers in the face of a fraught external environment.

"We could take a negative rating action if the economic downturn proved deeper and longer than our projections, leading to a multi-year deterioration of public finances. This scenario could also emerge should policy measures to mitigate the pandemic prove less effective than we currently assume, possibly as a consequence of extended political turbulence. Additionally, downward rating pressure could build if external or domestic security risks increased substantially.

"A positive rating action could stem from fiscal consolidation efforts over the medium term… We assume the COVID-19 shock will be short-lived and project that the economy will recover by over 6% in 2021, supported by the rebound in the global economy."

S&P's rating review comes after rival agency Moody's cut its rating outlook from Stable to Neutral, indicating that it had changed its mind about a possible rating upgrade. Since Moody's current rating is already one level below those of S&P and Fitch, the assessment on the market was that Moody's outlook downgrade would influence S&P as well, but this has not happened.

Published by Globes, Israel business news - en.globes.co.il - on May 17, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Standard & Poor's  picture: Reuters
Standard & Poor's picture: Reuters
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