Moody's Investors Service says in its annual report on Israel that the country’s investment-grade ratings and positive outlook reflect the country's improved economic dynamism and unusual resilience despite war and ongoing regional tensions. Moody’s rates Israel's foreign currency country ceiling for bonds as Aa1, based on the foreign currency government bond rating of A2, and its assessment of a very low risk of a payments moratorium in the event of a government bond default.
Moody's Vice President Kristin Lindow said, "The Israeli economy is in the midst of a prolonged upturn that was only briefly affected by last year's war with Hizbullah, the militant Islamic movement based in Lebanon. Growth has averaged 5% for the last three years, yet the current account surplus actually widened further each year and inflation was nonexistent in 2006."
Israel’s fiscal deficit narrowed and the government's very high debt burden shrunk by 9 percentage points as a share of GDP. "Capital market, fiscal, and labor market reforms along with the restructuring of some key monopolies have been an important boost to growth by transforming Israel into a more modern, competitive, and market-oriented economy. Israel has a clear comparative advantage in knowledge-based information-technology products and services, and has attracted large-scale foreign direct investments both in the midst of the conflict and after."
Lindow said economic strategies have gained widespread acceptance because of their success, even though the local political environment is arguably more contentious than ever before. "Recriminations over the perceived 'failure to win' the second Lebanon war and a flurry of corruption allegations against many current political leaders, including the prime minister and the finance minister, have not unsettled local financial markets. Nor have the flare-up of violence in the Gaza Strip, outstanding concerns about the Hamas government in the Palestinian Authority and the threat of a nuclear-empowered Iran."
Although Lindow cautioned that the economy's performance would likely be vulnerable in the event of a prolonged or severe deterioration in the security situation, she emphasized that its newly entrenched dynamism suggests that its resilience has been greatly strengthened in recent years.
Published by Globes [online], Israel business news - www.globes.co.il - on April 1, 2007
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