(The following statement was released by the rating agency)
LONDON, May 23 (Fitch) Fitch Ratings has affirmed Israel's
Long-term foreign and
local currency Issuer Default Ratings (IDR) at 'A' and 'A+',
Outlook on the Long-term foreign-currency IDR is Positive and
the Outlook on the
Long-term local currency IDR is Stable. The issue ratings on
unsecured foreign and local currency bonds have also been
affirmed at 'A' and
'A+', respectively. The Country Ceiling has been affirmed at
'AA-' and the
Short-term foreign currency IDR at 'F1'.
KEY RATING DRIVERS
Israel's IDRs reflect the following key rating drivers:
Fiscal consolidation remains on track. The central government
to 3.2% of GDP in 2013 compared with a budgeted 4.3% of GDP and
a 2012 deficit
of 3.9% of GDP, due to tightening measures and various one-off
strength resulted in a small surplus in 1Q14, compared with a
deficit of 0.5% of
GDP in 1Q13. Political commitment to consolidation appears
strong and a fiscal
rule has been tightened. Fitch forecasts a further narrowing of
government deficit to 2.5% of GDP in 2015.
Debt is relatively high, at 67.4% of GDP at end-2013 compared
with the 'A'
median of 52.3% of GDP, but it is forecast to stay on a downward
Financing flexibility is high, with deep and liquid local
markets, access to the
international capital market (including a euro-denominated
issuance in January
2014), and an active diaspora bond programme and US government
guarantees in the
event of market disruption. Debt management is also a relative
The external balance sheet is stronger than peers. The start of
has caused a structural improvement in the balance of payments
that will support
continued current account surpluses, which are forecast to
average 2.6% of GDP
over 2014 and 2015. Large inflows of foreign direct investment
intervention in the foreign exchange market have also lifted
the net creditor position to a new high at the end of 2013.
Growth is faster than peers and is picking up after likely
bottoming in 3Q13.
Real GDP growth was 3.3% in 2013, but at around 2.6% excluding
gas, was the
lowest since 2009. Growth is forecast to average 3.5% of GDP in
2014 and 2015.
Domestic demand should improve as the impact of fiscal
consolidation fades and
monetary policy remains supportive. Rising global demand should
growth despite the impact of currency appreciation, and
benefit from greater housing construction.
Geopolitical risk is a constraint on Israel's rating. Some
countries do not formally recognise Israel's existence and there
intermittent conflicts with military groups in surrounding
territories. Tensions with Iran are high. The conflict in
poses risks to Israel and to other neighbouring countries that
Israel, although direct spill-over has so far been minimal.
Israel's strong and well-developed institutions and education
system have led to
a diverse and advanced economy. Human development indicators and
GDP per capita
are high and the business environment promotes innovation.
sector growth has led to service exports averaging over 10%
during the past
three years, despite currency strength, and net inflows of FDI
averaged 2.6% of
GDP over 2012 and 2013, almost double the peer median.
Steps are being taken to tackle structural weaknesses. A law has
that will reduce concentration of ownership in the private
labour force participation from ultra-orthodox men and Arab
women, partly in
response to government initiatives, is holding down wage
inflation. In both
areas there is significant scope for further progress.
The Positive Outlook reflects the following risk factors that
or collectively, result in an upgrade:
- A sustainable narrowing of the fiscal deficit consistent with
- Continued progress in reducing the debt/GDP ratio towards the
- A sustained easing in geopolitical risk.
The current Outlook is Positive. Consequently, Fitch's
sensitivity analysis does
not currently anticipate developments with a material
or collectively, of leading to a downgrade. However, future
may, individually or collectively, lead to a revision of the
Outlook to Stable
- A sustained deterioration of the debt/GDP ratio.
- A serious worsening of geopolitical risk.
A high level of geopolitical risk is factored into Israel's
regional conflicts are assumed to continue, but their impact on
Israel not to
worsen materially. Fitch does not expect a military conflict
between Israel and
Iran. Fitch assumes civil war in Syria will continue without
destabilising neighbouring states or directly spilling over into
does not assume any breakthrough in the peace process with the
exclude the possibility of renewed conflict with Hamas in Gaza.
Fitch assumes that the ruling coalition will hold together and
to lowering the deficit over the forecast period.
Gas supply and associated revenue streams are assumed to flow in
line with the
authorities' assumptions. Production at Tamar is expected to
uninterrupted. Fiscal and export revenues from gas will be low
Fitch assumes that house price inflation will ease and that
movements will not destabilise the financial sector.
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Additional information is available on www.fitchratings.com
Applicable criteria, 'Sovereign Rating Criteria' dated 13 August
'Country Ceilings' dated 09 August 2013, are available at
Applicable Criteria and Related Research:
Sovereign Rating Criteria
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