Moody's: Israel outlook 'stable'

Confident that continuation of reforms would encourage growth rates, contain inflation, and reduce unemployment and income disparities.

bank hapoalim 298  (photo credit: Ariel Jerozolimski [file])
bank hapoalim 298
(photo credit: Ariel Jerozolimski [file])
Moody's Investors Service has reiterated its "A2" long-term credit rating and "stable" forecast for Israel in its annual report on the country, confident that continued pursuit of reforms would encourage strong growth rates, contain inflation, and reduce unemployment and income disparities over the medium- and long-terms. "The company's announcement testifies that Israel's economy is stable and strong, and indicates the government's ability to continue its fiscal policy and structural reforms that will keep improving the economy's growth potential," Finance Minister and acting Prime Minister Ehud Olmert commented Thursday in response to the report issued earlier in the week. An "A" rating is considered upper-medium grade and is subject to low credit risk. The firm's highest rating is "Aaa1" and its lowest rating is "C3." Ratings from agencies like Moody's are important because they affect a country's businesses' ability to raise funds and get credit. Moody's noted that Israel's policy to shrink the public sector and reduce debt, while keeping interest rates low and encouraging investments in the private sector, could influence the firm to raise the country's credit rating in the future. Israel's economy's ability to withstand significant shocks occurring simultaneously is evidence of the country's energetic civil society and responsible economic and political leadership, Moody's said in its report. The country also continues to enjoy a relative advantage in hi-tech production and information services, with hi-tech industries comprising the bulk of industrial exports, Moody's added, noting that the level of sales of hi-tech goods and services is even higher than it was in 2000. Compared with developed countries, Israel invests the highest amount in research and development relative to gross domestic product, at 4.6% in 2003, the firm said while surplus in the current account, increased foreign investment and a high level of foreign currency deposits significantly reduce the chance of a crisis in the balance of payments, Moody's added. The ratings agency also called attention to the lower than intended overall public-sector deficit of 2.6% of GDP in 2005, led by good performance in the government deficit, which at 1.9% of GDP was significantly lower than the original target of 3.4%. The trend of reduced government spending relative to GDP would continue in 2006, Moody's said, though the ratio was still high in comparison with the OECD average as well as with countries rated "A3" and Israel's fellow "A2"-rated countries, such as Cyprus, Latvia, Poland and Slovakia. Israel's near 102% debt-to-GDP ratio was also significantly higher than these countries, the firm noted, stating that its relatively low ratio of external debt to foreign deposits and environmental vulnerability index put the country in a good place within the "A2" category. Moody's had indicated during a visit to Israel in early February that it had intended to maintain its rating and outlook for the country.