Fitch Reaffirms Israel's A plus Rating Thanks to Budget

Fitch reaffirmed its high rating of Israel’s economy this summer in response to the budget the government passed in early November. Although Fitch gave Israel’s economy an A plus in July 2021, it expressed caution given the ongoing uncertainty in Israel’s political climate, the threat of yet another election, and the lack of a tangible budget.

Since this uncertainty has been allayed in the passage of a budget, Fitch has confirmed its A plus rating with bullish predictions concerning Israel’s economy for the next few years. This is good news for those who are looking for Israeli investments and the right time to invest in Israel.

The New York and London-based rating agency called the budget an “important milestone” according to the Times of Israel. The budget passed by the narrowest of margins, 61 to 59, and the alternative might have been the collapse of the current government.

The budget was also ambitious with a 609 billion shekel ($148 billion) spending plan which includes renewable energy, transportation, and construction provisions and a relaxation of regulations on banking, trade, and the growth of startups.

Fitch’s Bullish Predictions

Prior to the approval of the budget, Fitch was cautiously optimistic about Israel’s economy and gave it a high rating and ambitious projections for growth based on the strength of its tech sector and the country’s ability to battle successfully the fiscal headwinds created by the pandemic.

The budget caused Fitch to revise its original projections and place debt as 6.8% of the GDP down from 7%. Debt was 11.2% of the GDP during the pandemic. The rating agency sees debt as a percentage of GDP falling further in 2022 to 3.9% if the budget holds up and if political stability holds.

Fitch also expects continued growth in Israel’s economy in the aftermath of the pandemic, when it fell to 2.6% increased to 5% in 2021 with a forecast of 5.7% in 2022. This shows not only a dramatic rebound from the pandemic but a higher level than that prior to COVID when Israel’s GDP grew at a five-year average of 3.7% compared to the median rate of 4% for Fitch’s A-rated countries. Fitch’s prediction puts Israel at 5%, well above the median rate of GDP growth.

Although A plus may appear to be the best score a country can get, and it is impressive, Fitch has given higher grades, such as AAA. The lowest grade Fitch gives is “D.” To make Fitch’s A grade cut, a country must have good credit, a relatively low default risk, and the ability to pay off its debt.

In its statement reported by Globes, Fitch said, “The economy has been more resilient to the pandemic shock than many rating peers, reflecting the strong performance of high-tech industries and the early and fast progress in vaccination. Fitch’s forecast implies that Israel will outperform the ‘A’ median for GDP growth for each year from 2021 to 2023.”

However, Fitch warned that Israel could be vulnerable to “fiscal slippage” such as an unexpected external event, but this is true of any other country. Still, yet another wave of the pandemic or a military conflict could affect Fitch’s ratings.

On the other hand, the Delta variant and a military conflict with Hamas in the spring of 2021 did not interfere with Israel’s economic recovery or affect the A-plus rating Fitch gave Israel’s economy in July. Israeli investments have been strong, and even in the height of the pandemic, Israel’s startup sector was breaking records in fundraising and is expected to continue to flourish in the near future.

The Best Way to Invest in Israel’s Economy

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