After S&P and Moody’s, the third credit rating company Fitch also confirms the credit rating of the State of Israel at the level of A + with a stable forecast. The company’s base scenario assumes that economic restrictions will be stopped, vaccinations will continue at a high pace in the first half of 2021 and foreign tourism will be renewed to a limited extent in the second half of the year. Analysts expect a real increase in GDP of 5.4% in 2021 and 4.1% in 2022.
Referring to the peak deficit data for 2020 published this week, Fitch notes that Israel’s fiscal situation has deteriorated due to the epidemic, and estimates that continued political volatility complicates the chances of reducing the budget deficit. Against this background, Fitch assumes that the government deficit will remain high in 2021 as well, and will stand at about 9% of GDP, after 11.7% in 2020. The public debt-to-GDP ratio is expected to stand at about 76% in 2020, and rise to 80% around 2023. Fitch notes that these debt levels are higher than those of the countries with a credit rating similar to that of Israel, but on the other hand the company emphasizes that the country’s financing terms have remained favorable, thanks in part to the bank’s government bond purchase program. Israel, which has resulted in the nominal yield on 10-year government bonds remaining below 1% for most of the year.
Israel’s main strength in relation to similar countries is the current account surplus every year since 2003. In 2020, this surplus increased to close to 4% of GDP due to a larger contraction in import prices compared to exports. Fitch expects Israel to continue to have a current account surplus as growth in exports of services remains strong. The company also notes that net foreign investment is also contributing to a 38% jump in foreign exchange reserves in 2020 to the region of $ 173 billion (about 17 months of external payments). Israel’s status as a net external lender is estimated to have strengthened to 58% of GDP at the end of 2020, a figure significantly higher than the data of the median countries in the ranking groups A and AA.