S&P Maintains Israel’s Sovereign Debt Rating, See Little Fiscal Impact From Gaza War

Israel to retain its A+ rating despite costs of Operation Protective Edge, though agency expects recent war to contribute to slowdown in 2014.

Bloomberg

Standard & Poor’s has confirmed Israel’s sovereign debt rating, leaving it unchanged at A+ with a stable outlook.

The fiscal impact of Israel's recent operation in Gaza will be minor, according to rating agency Standard & Poor's, Globes reported on Sunday.

S&P officials had visited Israel in June, before Operation Protective Edge, and have spoken with Finance Ministry staff on economic policy over the past few weeks.

In an announcement Friday, S&P said it made its decision after determining that the Gaza war would not have a meaningful impact on Israel’s fiscal standing.

Decision makers breathed a sigh of relief following the announcement by the world’s largest credit rating agency.


"In our view, the recent Gaza conflict will lead to only a modest weakening of Israel's fiscal trajectory. Although Israel may temporarily reverse its fiscal consolidation, we expect its gross general government debt ratio to remain largely flat in the next three years," announced the agency. "The stable outlook reflects our view that the government will maintain stable public finances and that the impact of security risks on the Israeli economy will be contained."

Regarding the Israeli offensive, known as Operation Protective Edge, S&P stated, "Although the recent fighting in Gaza is a reminder of the long-term threat posed by geopolitical risks, we consider that in the short term, the effect will only be to accentuate the economic slowdown and modestly weaken the fiscal account."
Consequently, continued the agency, "The fighting has not changed our view of Israel's core credit strengths, such as its prosperous and diverse economy, the contribution of natural gas production to a healthy external balance, and its relatively flexible monetary framework."

Still, the agency does expect the war to "constrain economic activity in the third quarter," after seeing a slowdown in the first half of 2014. It lowered its projection for real GDP growth in 2013 to 2.3%, but forecasted that annual GDP in 2015-2017 would return to 2012-13 levels of 3%.

Per capital income is currently above $38,000, "making Israel one of the highest-income economies," added S&P.