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Moody's, S&P, Reaffirm Israel's Rating

Moody's reaffirmed Israel's A1 rating after their annual trip to Israel this past June, 2009.

In addition, Standard & Poor's also re-affirmed their A rating for Israel following their visit this past July, 2009.

Fitch also made their annual visit this past July and should release their rating update soon.

Israel's rating reaffirmation in the midst of a global financial crisis where many countries are being downgraded shows the strength and stability of the Israeli economy.

(Source: Ministry of Finance – Debt Management Unit, Accountant General).

'Moody's' upgrades Israel's credit rating to A1

International credit ratings firm Moody's upgraded Israel's foreign and local currency bond ratings and foreign currency ceiling for bank deposits to A1 from A2.

The upgrade reflects Israel's proven resiliency in the face of repeated economic and political shocks and the ongoing financial and political support from the United States and the Jewish Diaspora, said Moody's.

Finance Minister Ronnie Bar-On said in response that "particularly in these times of instability and an international credit crisis, Israel's economy is being recognized for its fortitude and stability."

"Fiscal reforms are paying off in terms of increased economic vibrancy, diversification and competitiveness, and to the benefit of strengthening tax revenues, in spite of tax cuts. These factors have led Israel to post consistent current account surpluses, helping to insulate the economy in the current adverse global conditions," said Joan Feldbaum-Vidra, an analyst at Moody's.

Moody's places Israel's ratings on review for possible upgrade

About 70% of the government's external debt is sourced from US loan guarantees or State of Israel Bonds at favorable costs of funding.

State of Israel Bonds are sold mainly to Jewish communities outside of Israel, a group with deep and ready pockets to finance the Jewish state, especially during times of domestic or regional conflict. ‘These ample sources of liquidity are key credit strengths underlying Israel's high credit rating,’ said Lindow.”

18/03/2008

Moody's has placed Israel's A2 government bond ratings and the A2 country ceiling for foreign currency bank deposits on review for possible upgrade. The ratings have carried a positive outlook since May 2006. All other sovereign ratings are affirmed, including the Aa1 country ceiling for foreign currency debt.

The review for upgrade reflects both the resilience of the Israeli economy in response to repeated economic and political shocks and the fiscal consolidation of the past several years. Underlying the country's rating is a history of financial and political support from the United States and the Jewish diaspora.

Moody's review will primarily focus on the continued ability of the government to stay the course on debt reduction notwithstanding a fractious domestic and regional political environment and the ever-more challenging global credit climate.

"Its ability to absorb economic and political shocks without fundamentally subverting its prudent fiscal strategy nor undermining its economic vibrancy distinguishes Israel favorably relative to an emerging market," according to Kristin Lindow, Moody's lead sovereign analyst for Israel.

Lindow observed that Israel's high per capita income, its competitive high-tech and industrial sectors, and strong government effectiveness are more akin to an advanced developed country. Moody's believes that advanced economies with strong institutional foundations and deep capital markets can better manage relatively large levels of government debt and are generally less volatile in terms of economic performance and policy.

But Lindow stressed that Israel's policy track record itself tells a compelling story about the country's ability to withstand shocks and its payment capacity. Aside from a large government debt, explicit credit challenges include a low labor force participation rate and persistently high inflation.

"Until a little more than a decade ago, indexation sustained stubbornly high inflation that substantially raised the servicing costs of the government's large domestic debt," said Lindow. "A successful disinflation program, reinforced by a robust monetary policy framework and, more recently, fiscal orthodoxy has significantly reduced the debt and debt servicing burdens. Other structural reforms have brought down unemployment while raising labor participation."

Fiscal discipline has been sustained in the face of economic and political pressures, said Lindow, including heightened military spending during and after the Second Lebanon War in 2006. She said that this track record underscores Israel's strong commitment to lowering the large public debt.

In contrast to the large, expensive domestic debt, Moody's said that Israel's external debt and debt service is very manageable. About 70% of the government's external debt is sourced from US loan guarantees or State of Israel Bonds at favorable costs of funding. State of Israel Bonds are sold mainly to Jewish communities outside of Israel, a group with deep and ready pockets to finance the Jewish state, especially during times of domestic or regional conflict. "These ample sources of liquidity are key credit strengths underlying Israel's high credit rating," said Lindow.

Lindow pointed to Israel's precarious security environment and the very poor outlook for the resumption of a peace process with the Palestinians as another critical credit challenge.

"Ongoing regional and domestic conflict continues to complicate policymaking, contributes to outsized budgetary defense expenditures and also is an obstacle to increased investment and stronger growth," cautioned Moody's. "These factors are likely to constrain Israel's rating from reaching substantially higher rating levels."

Lindow said that in spite of the substantial economic costs extracted by the political conflicts, Israel's high-tech sector is boosting GDP growth and government revenues. Though below potential, Israel's economic growth has been steady and quite strong.

"Although Israel is not a commodity-producing country, it has posted consistent current account surpluses in recent years, and the country is already a large net external creditor," said Lindow. "These are key ingredients that help to insulate Israel's external sector from adverse global financial conditions."

Fitch raises local rating

Details from Fitchratings.com here

Standard & Poor's raises local rating

Standard & Poor's, the international credit rating agency raised its credit ratings for most Israeli foreign and domestic debt for the first time since 1995, on the back of four years of "robust'' economic growth and a shrinking state budget deficit.

"We expected this, but the timing was a bit of a surprise because we thought it would come after the 2008 budget vote at the end of December," said Michael Sarel, chief of economics at Harel Insurance & Finance Ltd. "It appears that the fiscal situation is so good that even if there are last-minute changes in the budget it won't make any difference."

Israel's long-term foreign currency rating was raised to A from A- and its long-term local-currency rating to AA- from A+. Israel's short-term domestic rating was boosted to A-1+ from A-1.

The upgrade was the first for Israel since 1995, when it was raised to A- from BBB+ as the government issued bonds for the first time ever overseas. Last February, S&P raised the outlook for Israel to "positive'' from "stable.'' S&P estimated for Israeli gross domestic product to grow 5.4 percent this year because of "strong'' exports and "dynamic'' consumer spending.

"Such a quick rebound after the conflict in Lebanon in August 2006 demonstrates the economy's ability to withstand severe shocks," said S&P credit analyst Veronique Paillat-Chayrigues.

Prime Minister Ehud Olmert said that the upgrade was an "expression of confidence'' in the Israeli economy and the government's economic policy. Israel's economy has been growing since the middle of 2003, except for a retreat in third-quarter of 2006 during the Second War in the Lebanon. S&P forecasted that Israel's economy will probably grow a "relatively healthy'' 3.5% to 4% next year because the country's technology industry should be able to weather the impact of a slowdown in global trade. Furthermore, the government's budget deficit will probably narrow to 0.6% of GDP this year, compared with a budgeted 2.9%. Government debt will equal 82% of GDP by the end of this year, down from 103% in 2003.

Israel to Join OECD

(Communicated by the Prime Minister's Media Adviser)

The Organization for Economic Cooperation and Development Ministerial Council Meeting in Paris on April 16, 2007, and approved a decision to open accession discussions with Israel.

This decision is the fruit of a complicated and comprehensive working process that was carried out over several years by the Prime Minister's Office, the Bank of Israel and the Finance, Foreign, Justice and Industry, Trade and Employment ministries. The decision attests to respect for the Israeli economy and constitutes international recognition of the State of Israel's achievements as a democratic and developing country, and of its ability to contribute both to the global economy and to the organization. The decision to invite Israel to begin the process of joining the OECD is an important diplomatic achievement.

Prime Minister Ehud Olmert, who accelerated the aforesaid process during his tenure as Industry, Trade and Employment Minister, praised the decision: "This is a step that expresses confidence in the Israeli economy, in its strength and in its ability to develop. The great jump that the Israeli economy has made in recent years will receive significant encouragement. There is no doubt that the country will be able to enjoy additional investments from all over the world. My Government, which has set as a goal the improvement of residents' quality of life and the reduction of gaps through increased growth, can now be proud that the process of entering the OECD has begun and that we are on the road to additional growth. I will see to it that all relevant Government ministries and bodies will make every effort so that the timetable for entering the OECD is as short as possible."

The membership process is expected to take one to one-and-a-half years. It will be necessary to pass legislation, enact reforms and meet the organization's standards. After the membership process is completed, Israel will be able to benefit from assistance in encouraging investments, the upgrading of the economy's credit rating, improvements in competitiveness, etc.

See the Finance Ministry International Affairs Department’s website at www.oecd.gov.il

Moody’s says Israeli economy in prolonged upturn

Moody's Investors Service says in its annual report on Israel that the country’s investment-grade ratings and positive outlook reflect the country's improved economic dynamism and unusual resilience despite war and ongoing regional tensions. Moody’s rates Israel's foreign currency country ceiling for bonds as Aa1, based on the foreign currency government bond rating of A2, and its assessment of a very low risk of a payments moratorium in the event of a government bond default.

Moody's Vice President Kristin Lindow said, "The Israeli economy is in the midst of a prolonged upturn that was only briefly affected by last year's war with Hizbullah, the militant Islamic movement based in Lebanon. Growth has averaged 5% for the last three years, yet the current account surplus actually widened further each year and inflation was nonexistent in 2006."

Fitch Upgrades Israel 2007 Outlook to Positive

Fitch Ratings improved Israel 's foreign and local currency Issuer Default ratings (IDR) to Positive from Stable. Richard Fox, Head of Middle East and Africa Sovereign Ratings at Fitch stated, "The Positive Outlook reflects the Israeli economy's increased dynamism and resilience following the reforms of recent years, demonstrated by the limited economic impact of the war in Lebanon and strong rebound now underway.

External solvency indicators have continued to improve and strong inward and outward investment reflect Israel’s growing integration with the world economy. "

War Time Economy Stable

(Source: IsraelNN.com)

The governor of the Bank of Israel, Stanley Fischer, stated today at a debate of the Knesset Finance Committee that the economic situation during the recent war in Lebanon was comparatively stable. “Israelis had faith in the economy, and they did not transfer their investments abroad in any unusual manner. Foreign investors did not pull out in high numbers either as compared to investments before the war,” stated the governor.

Fischer added that the stock exchange registered less of a rise or fall in comparison to stock markets around the world. The most negative result was the return on 10-year bonds, which rose by 0.2 percent, when the rest of the world registered a descent. The governor stated that this showed the risk premium that we have needed to pay.

Fischer stated that the conflict mostly affected industry, tourism, and services. He estimated that the loss in production was between 0.8-1 percent, and the war would have a long-time effect on foreign tourism.

Investing in Israel

By Ron Dermer

“Smart investors see beyond the sound and fury of the moment and focus on fundamentals that pay huge dividends over time. As the Jewish state emerges from this latest round of violence, and as security is once again restored, Israel's economic motor will steam ahead. The smart money is getting on board now.”

Before Hizbullah terrorists brazenly crossed an internationally recognized border, killed several Israeli soldiers, kidnapped two others, and fired a flurry of missiles into northern Israel, the Israeli economy was steaming ahead. In the first half of the year, it was enjoying 6% growth, low inflation, falling unemployment, a budget surplus, a balance of payments surplus, a shrinking national debt, and record levels of foreign investment - an economic picture that was accurately described by one international analyst as "nearly perfect."

Though five weeks of war struck a blow to Israel's economy, it is strong enough to absorb it. Indeed, Israel's economy remains strong, and it will only get stronger in the future.

Recognizing this, none of the major ratings agencies lowered Israel's credit rating during the war. Those who have been paying attention to the recent transformation of the Israeli economy understand why.

First, Israel's fiscal policies are sound. Three years ago, finance minister Binyamin Netanyahu put Israel's fiscal house in order, and his successors have maintained that order. Faced with a deep recession, a bloated public sector (55% of GDP), exploding deficits (6% of GDP), a high debt burden (106% of GDP) and sky-high tax rates (64% marginal rate), the government drastically cut the budget and sharply reduced taxes. Moreover, abiding by conditions set forth in a 9 billion dollar loan guarantee program with America, Israel capped spending growth at 1% per year, and has maintained that budgetary framework for the last three years.

The results have been dramatic. While still high, the public sector now accounts for less than one-half of GDP, tax revenues have skyrocketed, and debt ratios have dropped to under 90% of GDP, bringing them close to the ratios maintained by the leading industrialized nations.

Second, a number of important structural reforms were implemented in the last three years. The government sold off its stake in the country's second and third largest banks, and privatized a number of state-owned companies including EL AL, the national airline, and Bezek, the national phone company. In addition, Israel overhauled the government pension system, restructured the ports, modernized the country's rail and road systems, and, perhaps most important, reformed the country's capital market, forcing what was effectively a banking duopoly to sell off its exclusive control of most of the country's financial assets.

The new government, led by Prime Minister Ehud Olmert, and Finance Minister Avraham Hirschson, has said that it is committed to continuing these prudent fiscal policies and to pressing forward with reform. Just three weeks ago, in the middle of the war, the government sold one of Israel's two oil refineries for $800 million, a sum nearly triple what it had been expected to fetch.

Sound fiscal policy is buttressed by sound monetary policy. Now that Alan Greenspan has retired, Israel can justifiably boast of having the finest central banker in the world in Stanley Fisher. With investors confident in his steady hand navigating Israel's economic ship, both the Israeli stock market and the shekel have essentially maintained their pre-war values.

But beyond the personalities or the policies of its government lies the real key to Israel's future - its people. With more scientists, engineers, high-tech start ups, and research & development spending per capita than any country in the world, Israel will continue to provide investors with access to human capital that is second to none.

That is why companies like Hewlett Packard and Sandisk acquired Israeli firms and technology in billion dollar deals after the war had already started, and why Greylock Partners just launched a $150 million venture capital fund to invest in early stage Israeli technology. That is also why it was no surprise when Intel announced last month that its Israeli R&D facility in Haifa developed a new chip that will form the core of the company's new mobile and desktop production line, and why Warren Buffet said that the war would not have dissuaded him from his recent purchase of a four billion dollar stake in Iscar, an international metal works company based in northern Israel.

To be sure, in addition to the scores who have lost their lives and the hundreds who have been injured, the war has caused significant economic damage. With missiles raining down on Israel's northern cities, the thousands of companies located there were either closed or forced to operate at only a fraction of their capacity. Tourism in the country as a whole, and in the north in particular has been hit hard, and will surely take many months to recover.

But tourism represents less than 2% of Israel's GDP. The heart of Israel's economy remains the export of high-technology goods and services and its pulse remains the highly skilled, dynamic, and entrepreneurial workforce that creates those goods and services.

Fitch, S&P, D&B Affirm Israel’s Ratings

On July 25, Standard & Poor’s affirmed Israel’s long-term foreign and local currency credit ratings at ‘A-’ and ‘A+’ respectively, and its short-term foreign and local currency ratings at 'A-1'. The company also maintained Israel’s stable outlook, stating, “The ratings reflect the improved resilience of Israel’s public finances and economy to geopolitical shocks, after a three-year period of fiscal consolidation and strong economic growth.”

A news announcement released by Fitch on July 14 noted, “Although confidence in Israel will take a short-term knock from the recent escalation of violence, the economy starts from a buoyant position which, together with a robust policy framework, will help limit economic fallout.” Fitch is maintaining its foreign and local currency ratings at ‘A-’ and ‘A’ with a stable outlook.

Israel an emerging 'safe haven,' Deutsche Bank says

As emerging markets experience their steepest slide in eight years, investment bank Deutsche Bank this week singled out Israel as one of two "safe havens" for investors looking to put their money in developing countries' exchanges.

"For those with very strong risk aversion, the low beta markets with little commodity exposure are Israel and Malaysia. They are your safe haven," Kingsmill Bond, emerging markets strategist at Deutsche Bank said in a research report.

Bond told The Jerusalem Post it was an accepted fact that Israel was a low volatility market compared to other emerging markets due to it not being subject to currency, commodity or interest rate spread concerns.

"Essentially Israel has a much more developed market type of environment," he said.

Emerging markets have lost 14 percent since their peak two weeks ago with Turkey, Argentina, South Africa and Russia listed by Bond as the worst performers for the period.

The Morgan Stanley Capital International Emerging Markets Index, which tracks shares in 26 developing countries globally, rose 2.3% to 767.15 during afternoon trade in London on Tuesday, on track to break the longest losing streak the index has had in eight years. The measure had experienced 10 straight days of losses.

The sell-off in emerging markets, according to Bond, came as a result of higher than expected US inflation data combined with slightly weaker US growth numbers.

"Investors are concerned that the Fed will be obliged to tighten by more and that in turn this will damage US growth," he said. "Weaker US growth will lead to weaker commodity prices and rising spreads between emerging market bonds and US treasuries, which are the two key drivers of emerging markets."

The TA-25 index meanwhile, having edged the 900 benchmark level on May 8, has since dropped to 870 at close of trade Tuesday, slightly above the level it was at the beginning of the month.

While Bond has a rating of "underweight" for Israel, he listed it among the countries in which buying opportunities are likely to materialize, and which do not have major macroeconomic vulnerabilities. He added that the investment house was reconsidering the rating "as long as internal economic growth continued."

Earlier this week, the Finance Ministry raised its growth forecasts for the year from 4.1% to 5.3%.

Moody upgrades outlook on Israel bonds

"Israeli society and its political and economic decision-makers have shown remarkable resiliency."

May 10, 2006

Moody's Investors Service has changed the outlook on Israel's key foreign-currency ratings from "Stable" to "Positive". "Israeli society and its political and economic decision-makers have shown remarkable resiliency in meeting the numerous challenges of the last few years," the announcement from Moody's said. The outlook change to positive affects Israel's foreign-currency ceiling, its foreign-currency government bonds (not guaranteed by the U.S. government), its foreign-currency bank deposit ceiling, and its local-currency bonds (all currently rated A2). Israel's local-currency bank deposit ceiling (Aa2) and its local currency guideline (Aa1) have a stable outlook and were not affected by today's rating action. The local currency guideline is the highest possible rating that could be assigned to obligors and obligations denominated in local currency within a country.

"Israel is exhibiting considerable growth of GDP per capita (purchasing power parity basis), moving towards a level more often associated with advanced economies than with developing ones. Also, the government debt-to-GDP and debt-to-revenue ratios have been on a declining trend since 2004," Moody's said.

"Israeli institutions have proved to be extremely robust in the face of considerable external and internal shocks, including global recession, the incapacitation of Prime Minister Ariel Sharon, the reformulation of the political spectrum, and repeated terrorist threats and actions.

" When combined with the unusual sources of financial assistance afforded by various programs of the United States government and Israelis and Jews living outside Israel, the result over time may imply a diminution of credit risk.".

Moody's said it would monitor the new government's ability to continue to reduce the important government debt-to-GDP and debt-to-revenue ratios. The rating agency will also monitor the negative impact of geopolitical risk factors on the country's creditworthiness.