According to a Fitch report, Israel's credit rating balances strong external finances, a diversified high value-added economy and solid institutional strength against a high government debt-to-GDP ratio and ongoing political uncertainty and security risks.
The report, however, said Israel's public finances have deteriorated significantly because of the COVID-19 pandemic, and ongoing political volatility complicates the prospects for fiscal adjustment.
But Israel's financing conditions have remained healthy, with deep and liquid local markets supported by the central bank, it added.
Fitch expects the Israeli government deficit to remain high in 2021, at about nine percent of GDP, after pandemic-related spending pushed it to 11.7 percent in 2020.
However, it forecasts the deficit to narrow to 4.3 percent of GDP in 2022, as there will probably be new revenue-raising measures and most coronavirus-related spending commitments will be phased out.
The agency projects Israel's real GDP growth of 5.4 percent in 2021 and 4.1 percent in 2022, after a contraction of 3.9 percent in 2020.
"Israel's diversified and high value-added economy proved resilient to recurring restrictions, with most of the increase in unemployment concentrated in low value-added sectors," the report noted.