The news this weekend that Standard & Poor’s, one of the leading international credit-rating agencies, has upgraded Israel’s rating to AA-minus from A-plus, should not come us a surprise. Nearly all of Israel’s major economic indices — GDP, foreign investment and employment — have been uniformly healthy for over a decade now. Israel was not only one of the few economies to weather the global financial crisis at the end of 2008 well, it has been uniquely positioned to take advantage of the expanding global tech-fuelled knowledge and information industries.
A double-A rating, for the first time in Israel’s history, will allow the government to restructure its loans and save hundreds of millions, perhaps billions, in the coming years. The upgrade has been in the air for a while, especially as the last time S&P upgraded Israel’s rating was seven years ago. It is expected that the other major credit-rating agency, Moody’s, will do so soon as well. Both agencies had teams of analysts visiting Israel in recent months, working on their in-depth assessments.
The Ministry of Finance and the Bank of Israel invested a lot of time and effort in hosting the delegations of analysts, scheduling meetings for them with both economists in the public sector as well as business and independent analysts and journalists.
One of the main issues the credit-rating analysts were interested in was the prospects for political stability, whether Benjamin Netanyahu remains in power and if he is replaced and his prolonged period in office ends, what comes next. With the economic data strong, political outlook becomes that more important. It seems the answers to their questions allowed them to reach the conclusion that whatever the future holds for Mr Netanyahu, Israel can expect to remain stable.
“Absent global trade shocks, Israel’s economic growth outlook will remain solid and allow the government to accommodate pressures coming from social and infrastructure spending, as well as a potential moderate escalation of security risks,” was S&P’s bottom line. The sign-off was a mild warning however. Israel’s economy can take a “moderate escalation of security risks” — it has indeed been largely isolated from the fighting in Gaza and chaos in neighbouring countries Egypt and Syria, over the last decade. But a more serious escalation is always a possibility in the Middle East.
The upgrade is encouraging but the fact it has taken Israel so long to reach this level, and the coveted triple-A still being seemingly out of reach, are reminders that, ultimately, Israel’s economy will always remain hostage to some degree to its regional location and geopolitical status.
The old joke, that the only way to make a small fortune in Israel is to come with a large fortune has long been obsolete. But t as long as the Middle East is in turmoil and most neighbouring markets are closed to Israeli businesses, the country’s full economic potential will remain unfulfilled.
