Fitch Upgrades Israel's Credit Outlook to Positive, Citing Shrinking Deficit

Firm affirms country's 'A' rating.

Fitch Ratings upgraded Israel’s credit outlook to positive on Friday, citing a lower-than-expected annual deficit.

The firm also affirmed Israel’s A rating, as well as the country’s long-term foreign and local currency issuer default ratings (IDR) at A and A+ respectively. Fitch also revised the outlook on the long-term foreign currency IDR to positive from stable, while the outlook on the long-term local currency IDR remained stable.

Israel’s credit outlook has been raised because the country’s “fiscal deficit is forecast to come in well below target this year,” Fitch said in its report. The firm said that based on data for the first 10 months of 2013, the budget deficit will be 3.4% of gross domestic product this year, compared with a target of 4.65%.

The improvement is credited to “a combination of consolidation measures, under-execution of budgeted spending and one-off factors.”

In addition, Fitch said Prime Minister Benjamin Netanyahu’s government that was formed following the January election is committed to deficit reduction in the medium term. It said the positive outlook was also supported by planned increased tax revenues and lower spending next year.

Fitch also commented on Finance Minister Yair Lapid’s scrapping of income-tax increases for next year. It said this does not change its view on the government’s commitment to reduce the deficit in the future.

The agency noted the government’s progress in addressing the economy’s structural problems, citing cuts in National Insurance allotments that could encourage people to enter the workforce. It also cited efforts to address the concentration of economic power, including Israel’s plans to restrict pyramid-type conglomerates.

Fitch added that it expects the country’s financial sector to remain stable and projects continued increases in housing costs.

Reuters