Fitch projects real GDP growth of 5.4% in 2021 and 4.1% in 2022, after a contraction of 3.9% in 2020.
By ZEV STUBAn electronic board displaying market data is seen at the entrance of the Tel Aviv Stock Exchange, in Tel Aviv, Israel(photo credit: REUTERS)
Credit rating company Fitch has confirmed Israel’s status at A+ and maintained its forecast at “stable,” the Finance Ministry said on Wednesday.“The confirmation of the credit rating of the State of Israel in this period of uncertainty and global crisis reflects confidence in its diverse economy and the government’s financial and fiscal ability to deal with the consequences of the crisis,” Accountant-General Yahli Rotenberg said.According to Fitch, Israel’s credit rating balances strong external accounts, a diversified economy with high added value and institutional resilience, and a government debt-to-GDP ratio that is still high relative to reference countries, and ongoing political and security risks.“Israel’s public finances have deteriorated significantly due to the pandemic, and ongoing political volatility complicates the prospects for fiscal adjustment,” Fitch said. “Government debt/GDP is forecast to peak in 2023 at about 80% from 76% in 2020 and 60% in 2019. This is well above the estimated 2020 median of around 58% for “A” category sovereigns. However, financing conditions have remained healthy. Deep and liquid local markets, supported by the central bank’s (6.3% of GDP) bond-buying program, have kept 10-year yields well below 1% for most of the year.“We expect the central government deficit to remain high in 2021, at about 9% of GDP, after pandemic-related spending pushed it to 11.7% in 2020. A budget is unlikely to be adopted before 3Q21 and we do not expect significant consolidation measures in 2021,” the report said.Fitch projects real GDP growth of 5.4% in 2021 and 4.1% in 2022, after a contraction of 3.9% in 2020, and that Israel will settle at a growth rate of close to 3%. Fitch’s analysis assumes that economic restrictions will be lifted, vaccinations will continue at a high rate in the first half of 2021 and foreign tourism will be renewed to a limited extent in the second half of the year.Regarding the Abraham Accords, Fitch said it remains to be seen whether they reduce the geopolitical risks that Israel faces.“Economic benefits are likely to be limited given the modest size of their economies compared with existing trade partners,” the report said.
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