On Friday, S&P reaffirmed its A+ rating with a "Stable" outlook for Israel. It says that Israel's fiscal consolidation is on track, economic growth is steady, and that the debt-to-GDP ratio has fallen. This is the second time that S&P has reaffirmed its credit rating for Israel since company representatives visited Israel in August 2013.
S&P favorably noted Israel's diversified and persperous economy, and the positive effect of natural gas discoveries on potential growth and external accounts. It also notes the improvement in Israel's fiscal position, thanks to the consensus on maintaining the budget framework, policy steps take in the 2013-14 budget, and the upward revisions to GDP because of new calculation methodologies and extra one-off revenues in 2013.
S&P cautions that there are two main obstacles to a higher rating: geopolitical risks and teh fiscal position, although it says that both are improving.
S&P estimates that the growth in Israel's GDP per capita places the country in the group of high-income earning countries with a growth rate at the upper limit of the comparison with Israel's peers. It expects real GDP growth of 3.2% in 2014 and 3.4% a year in 2015-17, because of the expected recovery in Israel's export markets.
S&P describes Israel's governing institutions as having a satisfactory degree of transparency and accountability, and says that the recent electoral reform should reduce political instability.
S&P says that the main challenges facing Israel are geopolitical risks, which are liable to affect the country's credit rating by deterring foreign investors, which could harm the country's potential growth and fiscal flexibility. It says that substantial improvement in Israel's geopolitical position and the continuing sharp reduction in the debt-to-GDP ratio might result in a rating upgrade, but warns that deterioration in Israel's geopolitical position and a halt in the lowering of the debt-to-GDP ratio could result in a rating downgrade.
"We will continue responsible policy for the Israeli economy, for the good of Israel's people," said Minister of Finance Yair Lapid.
Accountant General Michal Abadi-Boiangiu said, "The affirmation of the rating emphasizes the importance of keeping to the fiscal framework and lowering the debt-to-GDP ratio."
Published by Globes [online], Israel business news - www.globes-online.com - on March 30, 2014
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