(photo credit: REUTERS)
Although Israel’s economy and institutions are generally strong, it faces risks from geopolitical events, an upset in the development of natural-gas fields and the effects of the BDS (boycott, divestment and sanctions) movement, credit- ratings agency Moody’s said Wednesday in its annual credit analysis of Israel.
“A substantial further reduction in the government’s debt levels and an amelioration of geopolitical tensions would exert upward pressure on Israel’s creditworthiness,” the report said. “Conversely, the rating or outlook would come under downward pressure if the commitment to fiscal discipline was to wane. The rating also could be downgraded in the event that geopolitical developments pose heightened challenges to Israel’s stability.”
Moody’s left Israel’s ratings at A1, with a stable outlook, and gave the country high marks for economic and institutional strength. It was somewhat more iffy on the fiscal outlook, noting that political instability had kept budgets from passing, and the government has a regular habit of ignoring its self-imposed reductions to deficit reduction.
The introduction of natural gas, the report noted, helped cover up part of the recent economic slowdown, and further delays could have a serious impact.
“Regulatory and political concerns have delayed production, and the discovery of natural-gas reserves in Egypt may threaten exports,” the report said. “Israel could lose many of the upside benefits from the gas discoveries, particularly from the newest and largest field, Leviathan, should the delays persist.”
The report also took note of increased efforts from the BDS movement, though it said it has thus far had no economic impact.
“Recent efforts have resulted in largely symbolic actions, such as labeling requirements, against Israel; however, the Israeli economy could suffer should BDS gain greater traction,” the report said.
The most significant threat to Israel’s creditworthiness, however, remains its “susceptibility to event risk,” which was deemed “moderate” due to geopolitical risks.
“Israel’s extensive geopolitical challenges include the territorial disputes with the Palestinians, intense civil strife in Egypt and Syria, ISIS’s growing power on Israeli borders and continued concern regarding Iran’s nuclear program,” the report said.