S&P warns on Israel's political stability, rating kept unchanged

Election ballot boxes photo: Shutterstock

S&P sees no immediate risk, but is concerned about Israel's ability to cut fiscal debt in the medium term.

International credit ratings agency S&P has commented on Israel's inconclusive election results and warned on potential political instability but said that it does not expect any changes in economic factors supporting the country's current economic rating in the immediate future. S&P has therefore kept Israel's credit rating unchanged at AA- stable. However, S&P adds that if the political uncertainty remains high in the coming months, fiscal risks could build in the medium term.

S&P notes the need for parties to cooperate whether they are in favor or against the current government and that even if a coalition is formed, it is likely to be unstable as in previous governments. S&P observes that although the situation presents no immediate risk, if it persists, it will be difficult to find consensus on specific priorities to reduce fiscal debt in the medium term.

Regarding the government's budget deficit, which stood at 12.4% of GDP at the end of February, S&P expects it to be cut to 7.5% by the end of 2021, assuming that any government formed will strive to reduce debt. However, S&P warns that political disputes might encourage the creation of fiscal risks that will threaten a balanced budget. If this happens, then S&P says that the deficit could continue to widen despite its estimates and stabilize around 80% of GDP in the medium term.

At the same time, S&P stresses the core strength of Israel's credit rating including a flexible monetary policy. The credit rating agency also expects Israel's growth to bounce back quickly, which will provide a certain relief and contribute to mo0derating the pressure on the government's fiscal situation.

Published by Globes, Israel business news - en.globes.co.il - on March 31, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

Election ballot boxes photo: Shutterstock
Election ballot boxes photo: Shutterstock
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