Fitch reaffirms Israel's A+ rating, sees 5.5% 2021 growth
In explaining the decision, Fitch observed, "Israel's 'A+' rating balances a diversified, high value-added economy, which proved resilient to the Covid-19 pandemic, strong external finances and solid institutional strength against a high government debt/GDP ratio and elevated security risks."
After Israel's economy contracted 2.6% in 2020 due to the Covid crisis, the ratings agency forecasts 5.1% growth in 2021 and 5.7% growth in 2022, below the GDP growth forecast of the Bank of Israel.
Fitch said, "The economy has been more resilient to the pandemic shock than many rating peers, reflecting the strong performance of high-tech industries and the early and fast progress in vaccination. Fitch's forecast implies that Israel will outperform the 'A' median for GDP growth for each year from 2021 to 2023."
On fiscal matters, Fitch sees Israel's budget deficit narrowing to 7% of GDP in 2021 from 11.6% in 2020. The ratings agency sees the deficit narrowing further to 5% of GDP in 2022 and 3% in 2023.
Fitch predicts that the new coalition government will pass the budgets for 2021 and 2022 before the end of the year and that the debt to GDP ratio will stabilize in 2022.
The ratings agency explains that in order for Israel to improve its credit rating the trend in the reduction of its government debt to GDP ratio must continue. On the other hand if the debt to GDP ratio should rise or if geopolitical security risks were to cause a long-term serious economic impact, then this could adversely affect its rating.