Fitch Ratings applauds Israel’s budget approval

The approval of Israel’s first state budget in 3.5 years is receiving positive feedback from global credit rating agencies.

Fitch Ratings said Thursday that the budget “reduces political uncertainty and potential risks to public finances, affirming the government’s ability to promote legislation … in line with our expectations when we affirmed the sovereign rating at ‘A +’ with a stable outlook in July 2021. “

Israel also has a stable AA- rating from S&P Global Ratings and a stable A1 rating from Moody’s.

Israel’s financial position has benefited this year from its strong economic rebound, the gradual removal of pandemic restrictions and particularly strong tax revenues from the high-tech sector, Fitch said.

Fitch noted that the new budget sets a deficit target of 6.8% of GDP in 2021 and 3.9% in 2022, below the peak of 11.4% in 2020 due to the pandemic. This represents a pace of fiscal consolidation slightly faster than our July assumptions for deficits of 7.3% and 5.2% of GDP, respectively, he said.

An electronic board displaying market data is seen at the entrance to the Tel Aviv Stock Exchange, in Tel Aviv, Israel (credit: REUTERS)

“The government considers the budget targets to be consistent with its commitment that public debt will peak at around 74% of GDP and then decline to 60% in the medium term,” Fitch said. “In July we said that a persistent increase in public debt / GDP, reflecting, for example, the absence of sufficient consolidation measures or weaker-than-expected economic growth, could be a negative factor in the sovereign rating. In our latest forecasts, we project that the debt-to-GDP ratio would not exceed 74% in 2021 and would remain practically stable in 2022 and 2023. “

Fitch noted that the Economic Arrangements Law that accompanied the budget included numerous structural reforms, including raising the retirement age for women, easing trade and import barriers, advancing deregulation, and passing measures to facilitate the transition of the economy to the use of renewable energy sources.

“The potential growth momentum of these measures is difficult to estimate ex ante,” Fitch said. “Israel had a five-year average GDP growth of 3.7% before the pandemic, roughly in line with the 4% median for ‘A’ rated sovereigns.”

Fitch’s announcement “indicates the importance of the convergence of the fiscal framework in the coming years, and positively signals the rapid recovery of the Israeli economy from the crown crisis,” said Finance Ministry Accountant General Yahli Rotenberg. , in a post-announcement statement. .

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