Credit rating company Standard & Poor's (S&P) has left its rating for Israel unchanged. The rating will remain at A- for short-term foreign currency debt, and A-1 for long-term foreign currency debt. For local currency debt, the rating is A+ for short-term, and A-1 for long-term. The outlook for Israel's rating remains negative.
Minister of Finance Benjamin Netanyahu, who held meeting with the ratings companies in New York two weeks ago, said that S&P's decision was a vote of confidence in the government's economic policy.
S&P's announcement said, "The affirmation reflects progress with the implementation of the government's economic program; signs of an economic recovery despite the ongoing security situation; and continuing U.S. political and financial support. Backed by a clear majority in the Knesset (parliament), the government continues to make progress in correcting structural weaknesses in the budget, and pursuing its ambitious agenda of economic reforms."
"However, fiscal credibility remains fragile," said S&P credit analyst David Cooling. "The government has persistently failed to meet its fiscal targets and stabilize the public debt burden, which remains one of the highest among all rated sovereigns."
S&P noted that the latest government estimates forecast a budget deficit equivalent to 5.5% of GDP in 2003, against an initial target of 3.0%, while at the same time, the general government debt burden is forecast at close to 105% of GDP, having increased by more than 10 percentage points since 2001.
"The government targets a deficit equivalent to 4% of GDP in 2004, underpinned by a reduction in public sector wages, cutbacks in transfer payments and subsidies, and a recovery in revenues. This implies a primary surplus equivalent to 2.9% of GDP, which is sufficient to stabilize the public debt burden. Further primary surpluses in the order of 3% of GDP will be required to sustain a downward trend in the debt burden from 2005 onward," S&P's announcement said.
. "Even a modest deviation from this fiscal trajectory could quickly result in a further period of unsustainable fiscal deficits, precipitating a rapid increase in the public debt burden," said Mr. Cooling. "Conversely, progress toward achieving budget targets would improve the rating outlook."
Published by Globes [online] - www.globes.co.il - on November 24, 2003