Shekel money bills.
(photo credit: REUTERS)
The collapse of the government coalition and call for early elections just 20 months after the last ones is "credit negative," credit ratings agency Moody's said in a report on Monday.
"Israel’s political turmoil is credit negative for the sovereign because it will dampen economic confidence, delay the implementation of growth-boosting reforms and hinder fiscal planning for the next two years," said the report. The company did not change Israel's rating of A1 with a stable outlook.
Because Israel won't have a budget in place until at least mid-2015, the government will revert to 2014 spending levels, which may actually be good news from a fiscal perspective. Former Finance Minister Yair Lapid planned to raise the deficit from 3% in 2014 to 3.4% in 2015. Reverting to the older budget for a few months could be good for Israel's debt burden.
"Although positive in that sense, it is more of an accident than emblematic of good fiscal policy management," the report said. Worse, the political instability creates uncertainty over policy and investment and weighs down economic activity. "Growth-enhancing structural reforms, such as increasing economic competition by reducing the power of the country’s business monopolies and reducing tariffs on imports are likely to stall." Election-time promises could also result in irresponsible policy and rule-breaking.
Israel's moderating economy, the effects of the summer war with Gaza and the departure from deficit targets in recent years led competing credit ratings agency Fitch to lower its outlook for Israel's credit rating from "positive" to "stable" in November.
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. Better credit ratings mean lower borrowing costs, and thus less debt to pay off in the future.
In 2015, Israel will spend NIS 109 billion on repaying debt. Of that, NIS 40 b. will be devoted to interest payments alone.