International credit ratings agency Fitch said Tuesday that Israel's approval of the 2023-2024 state budget has contributed to its official political stability, however, the credit rating of the country may still be affected due to the judicial overhaul.
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"The country continues to operate with high levels of social and internal political tension, and the coalition is advancing with certain policies that could exacerbate these tensions and impact the country's credit rating," the agency said.
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Finanace Minister Bezalel Smotirch and Prime Minister Benjamin Netanyahu after approval of the 2023-2024 state budget
(Photo: Yonatan Zindel)
Fitch also referred to the recent statements of Prime Minister Benjamin Netanyahu this week regarding his intention to pursue judicial reform, and it warned once again that this could potentially harm the country's credit rating. "We already wrote in March that reform has the potential to have a negative impact on Israel's credit profile. The prime minister stated that the judicial reform will continue, but the precise proposals of the coalition are unclear at this stage."
Furthermore, Fitch says that "although Israel will finish the coming years with a budget deficit, its debt-to-GDP ratio will continue to decrease over the next three years." The company estimates that tax revenues will decline by 2.3% this year compared to 2022, which is a more pessimistic forecast than that of the primary economist. Therefore, the rating agency estimates that in 2023 the deficit will stand at 1.5%, in 2024 at 2.3%, and in 2025 at 2.8%.
Despite this, according to Fitch, Israel's debt-to-GDP ratio will continue to decrease and reach 57.9%. The company's economists note that once Israel falls below the 60% debt-to-GDP threshold, a credit rating upgrade may be possible. However, according to their analysis, such an upgrade depends on the stability of government metrics as well.