Fitch lowers Israel's outlook from 'positive' to 'stable'

Change indicates Israel's credit rating is unlikely to soon improve.

November 22, 2014 20:15
1 minute read.
Fitch Ratings

The Fitch Ratings building is seen in New York. (photo credit: REUTERS)

Credit ratings agency Fitch on Friday affirmed Israel’s credit rating as A, but lowered its outlook from “positive” to “stable.”

The rating is meant to convey Israel’s ability to pay its debts on time, while the outlook is meant to forecast where the rating might be headed in the next two years. The change indicates that Israel’s credit rating is unlikely to soon improve.

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Better credit ratings mean lower borrowing costs and thus less debt to pay off in the future.

The news will be unwelcome for Finance Minister Yair Lapid, who is working to pass his budget plan for 2015 in the Knesset.

Lapid ignored the Bank of Israel’s advice on deficit targets, raising them above the recommended targets for three years in a row and rewriting the deficit target plan through the end of the decade to try and compensate.

Fitch noted that its decisions stemmed in part from repercussions of the summer with Hamas: increased defense spending, straying from the planned fiscal framework, and the risk of future violent outbreaks.

The war also stunted Israel’s already slowing economic growth for the year, actually leading to a .4% contraction in the third quarter.

“Just last week, when Lapid came to the Knesset to present the budget, he dismissed questions from Knesset members on negative growth in the third quarter and said: ‘The fact is that the ratings agencies are not worried,’” said Meretz MK Zehava Gal- On. “Fitch’s decisions this weekend to reduce the outlook proves that you cannot fool everyone all the time.”

Fitch still estimated total growth for the year at 2.3% and forecast it at roughly 3% for the coming years.

On the bright side, the company does not expect Israel’s credit to deteriorate and forecasts that the debt level will remain at around 67.4% of GDP. While that path does not accord with the plan to lower debt to a sustainable 60%, it is, at least, not an increase.

Israel’s high level of reserves, strong educational infrastructure and diversified economy were also assets. There has even been progress on some of the country’s central long-term challenges: labor participation rates among Arab women and ultra-Orthodox men were up form 2008 to 2013, rising from 40.4% to 44.5% and 23.4% to 30.5%, respectively.

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