Israel Earns Highest-ever Credit Rating From Standard & Poor’s

Standard & Poor's announcement of AA-minus status reflects confidence in Jerusalem's fiscal policy, its ability to maintain budgetary discipline and reduce public debt

Finance Minister Moshe Kahlon and Prime Minister Benjamin Netanyahu, July 2018.
Alex Kolomoisky

Israel has reached an economic landmark with Standard & Poor’s announcement Friday that it is raising the country's credit rating from A-plus to AA-minus, seven years after the agency's last upgrade for Israel. Moreover, this is the highest rating Israel has ever received from international credit rating agencies since they began surveying the government’s bond issues.

S&P’s upgrade reflects a recognition of Israel’s economic achievements, particularly the consistent rise in its GDP. It is an expression of the organization's confidence in the government’s fiscal policy, its ability to maintain budgetary discipline, to meet its economic goals and to reduce its public debt.

In making its announcement, the agency cited Israel's exceptionally strong economic performance resulting in a pronounced decline in government debt over the past eight years. S&P also stated that although the country's public debt is still relatively high, the general trajectory is a positive one in that realm.

"Absent global trade shocks," the agency wrote, "Israel’s economic growth outlook will remain solid and allow the government to accommodate pressures coming from social and infrastructure spending, as well as a potential moderate escalation of security risks.”

S&P predicted that Israel's growth would remain strong – an estimated 3.3% in the next three years – and cited the fact that its GDP stands at about $140 billion more, or 50 percent higher than it was in 2010, and that unemployment is at a historical low.

The upgraded rating is tied also to the long- and short-term bonds issued by the government in foreign currency and shekels.

Israel’s new AA-minus is three levels below the maximum of AAA. It now shares the same S&P rating as 17 other countries, among them the Czech Republic, Estonia, Taiwan, Qatar and the Channel Islands of Jersey and Guernsey.

The two other major credit rating agencies are still rating Israel an A-plus (also called A1), but Moody’s, for one, said last week that an upgrade is on the horizon.

Even before the news on Friday, the government was enjoying the most convenient conditions it has ever had for raising capital abroad. The upgraded rating is recognition of this fact, and could improve the Jerusalem's bargaining power with lenders in global capital markets in the future.

Bank of Israel Governor Karnit Flug welcomed the improved rating as reflecting international confidence in the Bank of Israel’s policies and the importance of continuing to reduce Israel’s public debt.

Efforts to improve the country's credit rating are being led by Accountant General Rony Hizkiyahu and his senior deputy, Gil Cohen, chief of financing and credit in the Finance Ministry.

Finance Minister Moshe Kahlon said: “The confidence that the strongest economic agencies in the world have in us makes it possible to continue to grow the economy, and through the fruits of this growth, to maintain a policy of reducing social gaps and strengthening the middle class.”

Billions of shekels will be saved as a result of the new rating, which can now be diverted to areas including education, health and welfare, he added.

For his part, Hizkiyahu said the new rating “stressed the importance of promoting a monetary policy that encourages growth while maintaining fiscal discipline.”

The chairwoman of Psagot Investment House, Michal Abadi-Boiangiu, Hizkiyahu’s predecessor, said the reduction of public debt and attempts to maintain a low budget deficit, an on the other hand promotion of growth were “among the significant reasons for this huge success.”