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Israel's worsening economy and growing strains on the budget, as tax revenues continue to shrink may lead to a near-term sovereign ratings cut, ratings agency Fitch said on Thursday.

Last year Fitch rated Israel's outlook Negative. Now it says prospects for an economic recovery have diminished, and pressures on the country's public finances have intensified.

Fitch currently rates Israel A-minus.

"There's a greater than 50% chance the rating will go down based on current trends," Rochard Fox, senior director of sovereign ratings at Fitch, told Reuters. "Clearly, recovery prospects have become less buoyant and that has a bearing on the fiscal outlook."

He said the international ratings agency was watching the budget debate closely and warned that failure to pass the budget "would be a negative."

Israeli pundits have been expecting a rating downgrade after Standard and Poor's last week downgraded Israel's biggest banks. Hapoalim and Leumi were both reduced to BBB+, from A-minus.

Meanwhile, the international credit rating company Moody's has said it does not intend to lower Israel's rating in the near term from its current level of A2.

Jonathan Sheffer, a Moody's official said, "At the moment the rating for both the local currency borrowing and the foreign currency borrowing is A2, and we have no intention at the moment to change either the outlook or the rating."

Klein: government's handling of economic situation "unsatisfactoryBank of Israel Governor David Klein, currently on a trip to Washington DC, told Ha'aretz Wednesday that the government's handling of the economic situation was "unsatisfactory."

Klein, who is in the U.S. for the International Money Fund convention (IMF), related to the possibility that international credit rating companies would lower the credit rating of Israel's banks and to the possibility that Israel's credit rating could be harmed. Klein also commented on the IMF forecasts on the Israeli economy which were published Wednesday.

"The government should not disregard the warning we received from the credit companies. It should not say that everything is all right and that nothing needs to be done. We have to take these warnings very seriously, and again ask ourselves how to build an economic program that will revive economic growth and lower unemployment. The government's answers so far are unsatisfactory," he said.

IMF report says Israel facing negative growth, unemploymentThe International Monetary Fund said Wednesday that Israel faces negative growth and rising unemployment this year.

The IMF report predicted that Israel's gross domestic product would contract by 1.5 percent this year, but would rebound and grow by 1.8 percent in 2003. But it did not foresee this growth helping unemployment, which it said would hit 10.7 percent this year and 10.9 percent next year. It also forecast an inflation rate of 6.2 percent this year and 3.0 percent in 2003.

The report, which surveyed most of the world's nations, predicted negative growth this year for only two other developed economies besides Israel - Japan and Iceland. The IMF report noted that the worldwide recovery that began at the end of 2001 began to stall in the second quarter of 2002, and predicted that this slowdown would continue through 2003.

It therefore predicted that average growth worldwide would be only 2.8 percent this year, down from its earlier forecast of 4.0 percent. In developed economies, growth will average a mere 1.7 percent this year, it said, while unemployment will average 6.4 percent and inflation will average 1.4 percent.