4 September 12 10:38–In its annual credit report on Israel released yesterday, Moody’s Investors Service says that its A1 government bond rating and “Stable” outlook are underpinned by Israel’s high economic, institutional and government financial strength, but that the rating is constrained by significant social and political challenges, which lead to moderate susceptibility to event risk. The annual report is an update to the markets and does not constitute a rating action.
“Israel’s high economic strength was supported by its relatively high GDP per capita ($31,200 in 2011) and its economic resilience, which has been illustrated in recent years during frequent economic and political shocks,” Moody’s writes. “However, this resilience is being challenged once again by the ongoing eurozone debt crisis and the concurrent slowdown in the global economy. The Israeli economy’s pace of recovery following the global recession in 2009 has slowed as the contribution of net exports became a drag on the economy last year for the first time since 2007, a trend continued into the first quarter of this year.”
Although Moody’s currently assesses Israel’s institutional strength as high, based on the government’s effectiveness, rule of law and transparency, it cautions that political instability and corruption stand out as important weaknesses relative to its A-rated peers. “Failure to effectively address these issues could eventually jeopardize the country’s high institutional strength assessment,” it warns.
Moody’s warns that the Israeli government’s commitment to fiscal discipline is waning as growth has slowed, and that volatile domestic politics and regional political upheavals have delayed fiscal corrections that would have kept the budget deficit on target the last two years. “Additional spending has been allocated to address the acute problems in the housing sector, related primarily to affordability. Other social spending hikes in response to last year’s widespread popular demonstrations and secular increases, mainly associated with demographic trends, will require strict prioritization to conform to the fiscal rule that sets a ceiling on the growth of government spending,” it says…Read More>>