Rating agency Fitch encouraged by Israel’s state budget

International credit rating agency Fitch Ratings is encouraged by the passage of state budgets for 2021 and 2022 in Israel. Rating agencies had expressed concern about the lack of proper budgets in the past two years. In an update for investors, Fitch states, “The Israeli Knesset’s passage of budgets for 2021 and 2022 reduces political uncertainty and potential risks to the public finances, affirming the government’s capacity to advance legislation. The budget approval is in line with our expectations when we affirmed the sovereign rating at ‘A+’ with a Stable Outlook in July 2021.”

Fitch sees the passage of the budgets as demonstrating that Israel’s disparate governing coalition can work, and as positive for political stability. “The coalition agreement does not include another hard vote deadline that could topple the coalition until August 2023, reducing risks to political stability after a protracted period of heightened uncertainty and caretaker governments,” Fitch notes, but adds, “Nonetheless, the risk of other factors destabilising the coalition remains.”

On the fiscal deficit, Fitch’s finds public Israel’s public finances recovering faster than it had expected from the effects of the Covid-19 pandemic. “According to the new budget, the deficit target is 6.8% of GDP in 2021 and 3.9% in 2022, down from a peak of 11.4% in 2020 due to the pandemic. The improvement in the public finances this year has been driven by the strong economic rebound, the gradual withdrawal of the pandemic support measures, and particularly buoyant fiscal revenue from high-tech sectors,” the agency’s report states.

Fitch now sees the debt/GDP ratio not exceeding 74% in 2021, and remaining “broadly stable” in 2022 and 2023.

“Public finance risks have eased with the adoption of the budgets.. although we view the budget outcome for 2022 as still vulnerable to fiscal slippage, particularly if the economy were to experience another shock, for example due to global supply-chain disruptions or higher energy prices,” the report states..

Fitch also notes structural reforms in the Economic Arrangements Law for 2021 and 2022 accompanying the budgets: “Among other things, it raises the pension age for women, eases trade and import barriers, advances deregulation, and encompasses measures to facilitate the economy’s transition to using renewable energy sources.”

Minister of Finance Avigdor Liberman said in response to the report, “Approval of a state budget for the first time since 2018 has ensured the stability of the government for the coming years, and the Economic Arrangements Law contains structural reforms that will support sustainable growth alongside maintenance of the fiscal framework.”

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Accountant General Yali Rothenberg added, “The agency’s announcement indicates the importance of staying within the fiscal framework in the coming years, and mentions favorably the rapid recovery of the Israeli economy from the Covid-19 crisis.”

Published by Globes, Israel business news – en.globes.co.il – on November 11, 2021.

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