Moody’s upgrades Israel’s outlook to positive, affirms A1 rating

Global ratings agency Moody’s on Friday upgraded Government of Israel’s outlook to “positive” from “stable” and affirmed sovereign credit rating at “A1”

Moody’s said the key drivers for the change in outlook included the government’s reform agenda that aimed to address longer-term challenges and the agency’s expectation of a further reduction in the government’s debt ratio.

Israel’s economy grew 8.2 per cent in 2021, above forecasts by the country’s central bank, after a 20.2 per cent contraction in 2020. Israel’s annual inflation rate hit 3.5 per cent in February, the highest since 2011.

The Bank of Israel is expected to hike its interest rates next week, the first tightening in over a decade, to combat rising inflation from strong economic growth and labor market.

Israeli Finance Minister Avigdor Lieberman announced earlier this week the country’s budget deficit likely fell to between 1.5 per cent and 1.6 per cent of gross domestic product in March, and that he intended to cut petrol taxes due to spiking fuel costs.

The agency also said Israel’s affirmation of A1 rating balances the economy’s growth prospect and resilience against the government’s relatively high public debt burden.

Moody’s also noted that the Government of Israel’s debt affordability metrics were somewhat weaker than its peers.