Top marks

By
August 15, 2015 22:27

Glad tidings rarely qualify as newsworthy for the mass media. However, this is truly good news.

3 minute read.



Letters

Letters. (photo credit: REUTERS)

In our fast-paced news environment, little attention was paid to the decision by Standard and Poor’s to uphold Israel’s A+ rating along with its “stable” outlook. Although this was judged of marginal interest by news editors, it matters a great deal to each and every one of us.

To appreciate just how important the S&P announcement really is, we can only hypothesize about the ear-piercing ruckus that would have erupted had S&P opted to downgrade Israel’s credit rating.

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Glad tidings rarely qualify as newsworthy for the mass media. However, this is truly good news.

S&P, which has in its recent history fearlessly downgraded the biggest and mightiest economies – including that of the US a few years ago – has concluded that Israel’s fiscal consolidation is proceeding according to plan, the economy is growing soundly, and the debt-to-GDP ratio has declined.

The economy was judged as diverse (including the promise raised by natural gas prospects) and thriving (thanks to a conservative budgetary disposition, where the national bookkeeping framework is adhered to).

All this is achieved despite Israel’s beleaguered status. This is no mean feat, unequaled by states in far kinder geopolitical circumstances than ours. S&P estimates that the per capita increase in Israel’s GDP validates its inclusion in the high-income category.

This is nothing to scoff at because the temptation remains to throw caution to the wind and relax fiscal restraints.

Spendthrift economics is the fastest track to scoring popularity points. Indeed there are powerful stirrings of populism among the new Treasury brass. Signs of danger are clear and present as Finance Minister Moshe Kahlon has upped the 2015-16 deficit from 2.5 percent to 2.9%. This, the Bank of Israel warns, could increase the state’s debt burden for the first time since the 2009 global credit crunch.

S&P optimistically forecasts that in reality the 2015 deficit won’t top 2.8%. It noted that breaking the 2.9% limit might eventually lower Israel’s credit rating. This is no negligible risk because any nation’s credit rating is a vital tool for sovereign wealth funds, pension funds and other investors. The impact on the country’s borrowing costs cannot be exaggerated, especially in the alarmingly hostile BDS climate.

S&P’s gentle warning deserves consideration. The cur - rent predisposition for fiscal largesse at the Finance Ministry could destabilize our economy despite all of its praiseworthy successes thus far. Economics is always a delicate balancing act and the slightest misstep could spell disaster.

Extraordinary demands on the state budget are dangerous – be they from the defense establishment or, to a no lesser extent, from self-appointed social justice warriors on behalf of a bewildering array of socioeconomic causes. The gamut of would-be beneficiaries of government handouts hails from every nook and cranny of our manifold social and economic niches.

Nothing misleads more than the carelessly imparted impression that the Treasury can afford to loosen our collective purse strings and splurge on welfare and other programs.

Our success so far cannot but be attributed to the incontrovertible fact that Israel maintained budgetary constraints and abstained from fiscal irresponsibility. That was not easy. Any politician’s knee-jerk inclination is to please the voting public. That could well mean outlays of cash for whatever one’s electorate covets.

Prudence is not popular. The facile, populist prescription is to let the masses have what they clamor for.

Therefore, it would serve us all – both those at the economic helm and ordinary citizens no less – to remember that it is easy to start sliding down a seemingly innocuous slippery slope. Once a decline begins, though, it is hard to stop – as the Greek example dramatically demonstrates.

The S&P’s top marks were delivered with a word of warning – Israel must remain fiscally sensible so as not to jeopardize its accomplishments up to this point.

That said, Prime Minister Benjamin Netanyahu was right to argue that “the credit rating expresses the international community’s trust in the responsible and measured management of the Israeli economy over recent years.”


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