Moody’s, one of the big three international credit rating agencies, said on Friday it was keeping Israel’s rating unchanged at A1 and its outlook as Stable, despite widespread concerns about how the government is managing fiscal policy.
Moody’s, whose rating is equivalent to A-plus for the other agencies, is the first of the three to issue its report. Standard & Poor, which rates Israel AA-minus, one notch above Moody’s and Fitch, is expected to issue its report November 13.
The Moody rating comes at a sensitive time for Israel, whose budget deficit has ballooned to 9.1% of gross domestic product in the 12 months through September as it spends heavily to contain the health and economic fallout of the coronavirus. That is nearly triple the rate on the eve of the pandemic.
Although other countries have also amassed big budget deficits, some observers worried that the widely perceived disarray in the coalition and at the treasury would exacerbate the concerns of the credit agencies. Israel has been without a state budget for close to two years and in recent months the Finance Ministry has seen three of its top officials quit.
Moody’s lowered Israel’s outlook in April from Positive to Stable, citing among other factors, a “weakening fiscal policy effectiveness, driven in part by a more polarized political environment.”
Against that, Moody’s pointed to “robust medium-term growth potential;” strong external position, including its current account surplus and net overseas debt position and its “highly credible institutions.”
The credit rating is not just a vote of confidence in the economy but has a direct impact on the government’s cost of borrowing.
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As spending has grown to cover coronavirus costs, so have government bond sales. This year through the end of September, net sales of bonds (after discounting for bonds redeemed) reached 80 billion shekels in the domestic market and 57.5 billion shekels overseas, according to the treasury.