S&P asks Treasury about use of sovereign wealth fund

Benjamin Netanyahu and Bezalel Smotrich  credit: Ronen Zevulun, Reuters
Benjamin Netanyahu and Bezalel Smotrich credit: Ronen Zevulun, Reuters

The coalition agreements state that money from the fund, which is meant to be for the benefit of future generations, may be released for current infrastructure projects.

Representatives of international credit rating agency S&P held talks with Ministry of Finance officials last week, in the course of which the subject was raised of the new government’s intention to make use of Israel’s sovereign wealth fund, sources close to the matter told "Globes". According to the agency’s timetable, the next announcement concerning Israel’s rating is due to be published in May, but in the light of the political and fiscal developments in Israel, it is highly likely that it will bring the announcement forward.

S&P’s questions arise from the section on housing in the coalition agreements, which states, "The coalition parties commit to supporting a bill that will be sponsored by the prime minister for changing the Israel Citizens’ Fund Law such that it will be possible to use sums accumulated and added to it for financing infrastructure supporting housing or transport." In other words, the money in the sovereign wealth fund, which is designated for the use of future generations, will be released for the government’s immediate use.

So far, Ministry of Finance officials have received no instruction to start drafting such a bill, and, in response to an approach from "Globes", the Ministry of Finance spokesperson's office denied that S&P had raised any questions about the sovereign wealth fund.

The issue of the sovereign wealth fund, the money in which is invested overseas, is not the only one troubling S&P. Maxim Rybnikov, a director at S&P Global Ratings who is responsible for Israel’s rating, said in an interview with Reuters a few days ago that if the changes announced in the legal system were to lead to a weakening of the existing institutions and balances in Israel, that would be liable to represent a risk of the country’s rating being downgraded.

Israel’s current rating from S&P is AA-, and it has been stable for the past five years, putting Israel alongside such countries as Ireland, the Czech Republic, and Slovenia. This enables Israel to raise debt at fairly low interest rates, the latest example being last week’s successful issue of green bonds to the tune of $2 billion.

Although demand for the offering was high, there were repeated questions from international investors about the new government’s economic policy, particularly the target for the fiscal deficit. The demands of the coalition parties, if met in full, will cost tens of billions of shekels. This may be the reason why Minister of Finance Bezalel Smotrich was at pains to stress at his joint press conference with prime minister Benjamin Netanyahu, at which they announced measures to curb price rises, that these measures would not breach existing principles and mechanisms governing the fiscal deficit.

Published by Globes, Israel business news - en.globes.co.il - on January 15, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Benjamin Netanyahu and Bezalel Smotrich  credit: Ronen Zevulun, Reuters
Benjamin Netanyahu and Bezalel Smotrich credit: Ronen Zevulun, Reuters
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