Israel's credit rating may rise, according to the credit rating agency Fitch, which published a review for investors regarding the Israeli economy. The review comes following the approval of the state budget by the Knesset and despite the return to a deficit budget, Fitch estimates that the deficit will be lower than before the outbreak of the COVID pandemic.
In the review, which focused on Strong economic growth as the key to paying off Israel's debt, the analysts say that the deficit in the next three years will grow. The estimates are that in 2023 the deficit will be 1.5%, in 2024 it will rise to 2.3% and the following year it will be 2.8%. This assessment is in line with the forecasts according to which the company left Israel's credit rating in March, which stands at A+.
Despite the increase in the deficit, Fitch estimates that Israel's debt/GDP ratio will continue to decrease, mainly due to strong GDP growth that will average 6.9% over the next three years. In March, Fitch estimated that the government's debt-to-product ratio would reach 57.9% in 2024; a decrease of almost 4 percent from 2022 thus approaching the level of countries with a credit rating of AA - which may lead to a rating increase. The review did add that government stability remains a key factor in their predictions.
FITCH SAYS STRONG ECONOMIC GROWTH KEY TO ISRAEL’S DEBT TRAJECTORY #News #Markets #DEBT #ECONOMIC #capitalhungry
— Capital Hungry (@Capital_Hungry) May 29, 2023
Fitch predicts an increase in government spending in the medium term, in light of population growth and rising inflation, and mentions that the balance of power in the current government limits the ability to limit spending. In light of this, the rating agency warns that if revenues are below expectations, for example, if growth is not as high as expected, the result could be a larger deficit and damage to Israel's debt track.
Driven by favorable oil prices, the Middle East and North Africa's #construction industry is set to grow by 3.2% y-o-y in real terms this year, with #Egypt, #Israel and #Algeria taking the lead. Find out more: https://t.co/1wxhiLal8N#ConnectedThinking #MENA #Infrastructure pic.twitter.com/xmxoMHF40N
— Fitch Solutions (@FitchSolutions) May 23, 2023
Fitch also added that the transfer of the new state budget is a positive thing for the government's stability, but despite this Israel continues to experience governmental and social tensions, and warns that the promotion of various policies by the government could escalate the tension and affect the rating; a clear hint for the advancement of judicial reform.
Fitch could raise Israel's rating if reforms halted: Fitch writes, "The advancement of certain policies favored by the governing coalition could aggravate strains and influence the sovereign rating." Globes https://t.co/0bfVTecQIz pic.twitter.com/Rb7ZN7PXy8
— Jewish Community (@JComm_NewsFeeds) May 30, 2023
Regarding the state budget itself, Fitch said that the government focused on investing in education and infrastructure, but according to the review, the quality of the investment is also important. It was stated that while Fitch believes that there is still a risk of a lack of infrastructure and human capital that could be an obstacle to the ability of Israel's economy to grow in the long term if it is not effectively exploited.
