The S&P credit rating agency kept Israel’s rating as AA- on Saturday evening, this despite the country not having a budget and the threat of elections should the coalition topple over this issue.
The report was lauded by Finance Minister Israel Katz, who argued that it is “a great show of faith in the Israeli economy and an honorary grade” to the Jewish state.
He thanked outgoing Accountant-General Rony Hizkiyahu for leading the ministry’s discussions with the rating agencies.
Hizkiyahu, due to the lack of a budget, made all decisions concerning extra spending. Blue and White blocked the appointment of Yaheli Rotenberg to his former position, arguing that other positions must be filled first.
In an interview with The Marker, Hizkiyahu said that as things stand, nobody is authorized to make a single step concerning extra budgetary expenses.
“This is not my responsibility,” he said. “Politicians failed to do what the public expects them to do.”
So how is it possible that, under such conditions, S&P didn’t downgrade Israel? When Belgium elected socialist prime minister Elio Di Rupo nine years ago, Moody took Brussels down by two notches to Aa3. The UK got the same treatment last month with the unknown repercussions of Brexit and the impact of COVID-19 on the economy cited as the reasons.
Israel also faces a difficult COVID-19 situation and its politics aren’t very stable. Katz likes to liken himself to King Herod, and Prime Minister Benjamin Netanyahu remarked of his alleged ability to “beat the experts.” Is it possible that they might be right?
THE START-UP Nation is heavily invested in hi-tech. This is a sector that meshes well with the trends imposed by the pandemic – working from home and giving up the idea of business flights and celebratory meals when deals close. The pandemic meant a leap in health-related technology and digital services, which is something Israel does well in.
Tourism soared before the coronavirus struck, but the country isn’t such a heavy-duty tourist destination compared to the likes of Italy and France. Israel welcomed a record-breaking 4.5 million people last year; Italy saw 94 million and Paris alone welcomed 35.4 million. Israeli tourism businesses suffered, but the economy as a whole wasn’t as badly affected.
Israel can also point to a good 17-year track record of showing it is able to keep up with its payments, has large reserves of foreign currency and, under Bank of Israel Gov. Amir Yaron, reacted to the slump quickly and with flexibility, The Marker reported on Sunday.
Yaron has warned repeatedly that the state must have a budget. But the current situation in which the country is managed by a combination of a continuation of the 2018 budget plus “black boxes” – financial devices meant to be used in emergencies to fund state plans – is seen by the rating agencies as making good sense.
Netanyahu, who argued that it would be better not to pass a budget before the world – and Israelis – understand the pandemic better, might have been right after all.
Does this mean Israelis can sleep soundly at night, assured their financial futures are secure? It’s complicated.
The refusal of the agencies to downgrade Israel might also be the result of a “let sleeping dogs lie” policy.
With the US economy amassing an unbelievable debt – which may be bigger than its own economy in 2021, as per Global News – Netanyahu’s public message that “we shouldn’t be afraid to take loans” doesn’t sound quite so scary.
It is also possible that the raters, who can see what happened until now, are simply behind the current market. Meaning that bad times, for which a new budget and a national plan to retrain nearly a million Israelis out of work are necessary, are still ahead of us. This even if a vaccine will be on offer early next year.
S&P suggests that in 2021, Israel’s GDP will grow by 4.5% – not the best recovery rate, but still a recovery.
The government debt is expected to be roughly 78% for the next three years. Not ideal, but still not more than what the entire economy is worth.
Katz and Netanyahu were able to claim a remarkable achievement as their own. Time will tell if the team sent by the International Monetary Fund, now working in the country, will also submit such a positive report.