Difficult times in the Mediterranean world. For many, but not for all.
While Europe struggles with the crisis in the eurozone countries, Greece is at risk of default, Portugal floats in stormy waters, Spain is dealing with a 20+ per cent unemployment rate and Italy is trying hard to survive the night, and the Arab countries from Algeria all the way to Syria, there is one country that enjoys a much better situation, at least under an economic point of view.
That country is Israel. Despite all the conflicts with surrounding Arab neighbors, the recent attacks to its embassy in Cairo, the state of permanent tension with the Palestinian Authority, and the attacks its representatives have to counter every time the UN assembly meets, the country economical and financial situation is as good as ever, and has convinced Standard & Poor’s Ratings Services (S&P) to raise its long-term foreign currency sovereign credit ratings to ‘A+/A-1’ from ‘A/A-1’. At the same time, S&P affirmed the local currency ratings at ‘AA-/A-1+’. Also, S&P’s outlook is stable, and the transfer and convertibility (T&C) assessment remains at ‘AA’.
S&P mentioned that their ratings on Israel are supported by their view of its “prosperous and resilient economy, strong institutions, ongoing fiscal consolidation, and robust external performance”.
The ratings could have been even higher: the agency experts have dutifully and obviously taken into consideration also the significant geopolitical risks, partially offset by U.S. support, and its still-sizeable public-sector debt burden.
According to S&P, Israel is on a credible path toward continued government debt burden reduction and stronger external indicators, having weathered the global financial crisis well. S&P also noted that Israel’s external position is sound, as a result of consistent current account surpluses since 2003. In a five year time span, the situation might get even better, as the production of natural gas by the middle of the decade is likely to further increase the economy’s efficiency as well as strengthen its fiscal and external positions.
The stable outlook reflects S&P’s opinion that Israel’s popular consensus about containing public debt will remain intact despite social protests. S&P noted that “despite rapid appreciation in housing prices, we do not consider the sovereign to be exposed to significant contingent liabilities from the financial system.
Also, according to S&P, the banking sector appears to be tightly regulated, resident banks seem to pursue relatively conservative business models, and Israeli banks and households are also fairly well capitalized by international standards.