Fitch Affirms Israel’s A+ Rating, Citing Strong Growth

On Thursday, Fitch Ratings Inc. affirmed IsIsrael's long-term foreign-currency issuer default rating of A+, with a stable outlook. In early August, Standard & Poor's (S&P) did the same.

Fitch stated Israel’s macroeconomic performance has been strong, adding that its five-year average real GDP growth is “stronger than rating category peers and growth volatility has been lower.” The agency forecasts that Israel’s growth will remain strong in 2020-2021 despite fiscal tightening, close to 3% per year. Part of the tightening is expected to be alleviated by the start of gas output from the Leviathan offshore field in 2020. Fitch has also stated Israel’s external balance sheet remains strong, its international liquidity ratio has continued to improve, and its net external creditor position remains significantly stronger than the 'A' median and stronger than the 'AA' median.

However, Fitch stated Israel’s public finances remain weak relative to the 'A' category, and that its central government budget deficit widened to 2.9% of GDP in 2018, though it was on target. The agency forecasts that the deficit will grow to 3.6% of GDP in 2019—in line with the forecasts of the Israeli Ministry of Finance—meaning the government debt/GDP will continue to rise in the next two years. Furthermore, despite a downward trend seen since 2007, which ended in 2018, Israel’s debt/GDP for 2018, 61%, was still much higher than the 'A' median of 49%.

Fitch’s analysts forecast that political and security risks will continue to constrain Israel’s ratings, though they state that its credit profile “has shown resilience to periodic conflict and political shocks over an extended timeframe.” An easing of the risks or a decrease in the debt/GDP ratio could better Israel’s rating, and vice versa.