Despite the fear that uncertainty surrounding legal reform may lead credit rating agency S&P to make a decision similar to Moody’s, the citizens of the country can breathe a sigh of relief – last night the company confirmed Israel’s rating forecast at the AA level, with a stable outlook. The basic scenario that S&P is building upon involves reaching an agreement on legal reform.
In a joint statement by Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich in response to S&P’s credit rating, it is stated: “Israel’s positive rating, in a challenging global economic period, is an expression of confidence in the correct economic policy that we are leading. Soon, we will approve the state budget in the Knesset to ensure the continuation of our efforts to strengthen the economy and combat the cost of living for the benefit of all Israeli citizens.”
Despite the optimism surrounding the negotiations, the company estimates that growth will be only 1.5% this year. We asked several senior economists to comment on the international rating agency’s announcement and provide their brief interpretation.
“Incitement, slander, and incessant defamation”
“There has never been a real risk to the credit rating of the State of Israel, and anyone who says otherwise should simply be ashamed,” said Professor Yaron Zelicha to Israel Hayom. “S&P’s announcement closes the door on the economic stimulus campaign they have been conducting here in recent months. Not only is there no downgrade of the credit rating, there is not even a downgrade of the rating forecast. There are no signs of mass investor withdrawals or huge outflows of money abroad, bank collapses, or the nationalization of Israeli government funds. Shame and dishonor to anyone, any professional party, who collaborated with the incitement, slander, and incessant defamation that unsuccessfully attempted to sabotage Israel’s economy.”
Professor Zelicha also added: “The growth forecast for the Israeli economy, as has become clear since the middle of last year, is the result of a failed economic policy of the Lapid and Bennett government, which degraded per capita growth in the economy to zero.”
Regarding economic policy, Zelicha said: “The current Israeli government must restart because it has not changed anything regarding the previous policy. There are no growth engines in the budget, no significant reform addressing the cost of living, and no scale for the Bank of Israel to prevent an increase in interest rates, let alone reduce them. Prime Minister Netanyahu must take the reins into his own hands.”