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Israel's A1 credit rating not presently threatened by credit crisis, Gaza conflict

January 09, 2009 | "Moody’s"

New York, January 07, 2009 -- Israel's present political and financial shocks do not pose an immediate threat to the country's risk profile, including its A1 rating and stable outlook, says Moody's Investors Service in a special report on the country.

"Our main concern for the credit rating is fiscal, given the unknowns over the cost of the military conflict with Hamas in Gaza -- Israel is the only A-rated issuer with an active state of war on its territory -- and the ability of the government's fiscal intervention program to deal with the credit crunch and difficult conditions in Israel's capital markets," said Joan Feldbaum-Vidra, Moody's analyst for Israel and author of the report.

She said Israel's continued rating stability is delicately poised, driven by the expectation that the fiscal impact of these shocks will be relatively short in duration, paid for by savings in other areas, and, most importantly, that liquidity will remain fully available. The government's ample access to credit is a crucial underpinning for the country's high ratings given its susceptibility to shocks.

"The large government debt along with the difficult security situation has capped Israel's government bond ratings at A1," said Feldbaum-Vidra.

To the extent that the interruption in the favorable debt trends caused by the near-term slowdown in growth, higher defense costs, and the price tag for capital market interventions will be short-lived and not exaggerated in size, the rating can maintain its stable outlook, said the analyst. Israel's rating was upgraded to its present level in April 2008 based partly on the assessment that the structural decline in the government's debt burden would continue.

"Moody's central scenario is for Israel's government debt-to-GDP ratio to temporarily reverse direction, moving back upward from the current 80% level, before returning to a virtuous cycle subsequently," said Feldbaum-Vidra. "Even in this period of severe global uncertainty, this is consistent with Moody's practice of maintaining its ratings through temporary dislocations."

However, she said, any change in Moody's assessment of Israel's shock-absorption capacity would drive a rating adjustment. She further explained, "The fact that Israel has weathered severe shocks in the past increases our level of comfort in its high rating, although we do remain concerned about the 'untested waters' now being confronted."

"Should any development -- external or local -- bring that assumption into question enough to impair Israel's debt repayments capacity in a meaningful and durable way, its A1 rating would be likely to come under downward pressure," said Feldbaum-Vidra.

The principal methodology used in rating Israel is the "Sovereign Bond Ratings" methodology published in September 2008. The methodology can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the ratings process can also be found in the Credit Policy & Methodologies directory.

Società: Israel

Nome completo della societàState of Israel
PaeseIsrael
Paese di registrazioneIsrael

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