The change in the banking system is reflective of Israel's overall economic improvement. The International Monetary Fund's (IMF) Article IV Consultation on Israel, which incidentally came out on the same day as Moody's outlook report, provides some insight into the Israeli economy. Here were some of the positive aspects of the Israeli economy I was able to glean from the report:
There are some factors that I still find worrisome, including sharply rising house prices and the concentration of loans in the real estate market, raising the value-added tax from 17 percent to 18 percent, continued tax exemptions for those in [advanced] religious studies, the sudden appreciation of the shekel weakening performance in the trade sector, regulations that make securing property rights more difficult, a higher-than-OECD-average poverty rate, the fact that debt-to-GDP ratio is still at 68 percent, lack of integration of Haredi and Arab Israeli citizens, decreased portfolio inflows, and the reemergence of regional geopolitical tensions. Looking at Annex II in the IMF report, my educated guess is that while Israel's credit ratings will remain stable, it will take at least two to four years for the Israeli economy to work out some of its issues before credit rating agencies even begin to consider upgrading Israel's sovereign credit rating.
For further reading:
- Israel's foreign reserves are the equivalent of 22 percent of its GDP
- Medium-term GDP growth is projected to be 3.4 percent, which is higher than other developed countries
- Investment and savings have been on the rise
- The credit default swap (CDS) spreads have remained stable
- Unemployment has been decreasing and is nearly at 6 percent
- Israel's strong macroeconomic fundamentals and consistent flow of FDI keep it relatively immune from the volatility in global economic markets
- The Israeli government intends to reduce the deficit to 3 percent in the 2014 fiscal year, and intends to continue with further deficit reduction in the future
- The debt-to-GDP ratio has been on the decline since the Second Intifada
There are some factors that I still find worrisome, including sharply rising house prices and the concentration of loans in the real estate market, raising the value-added tax from 17 percent to 18 percent, continued tax exemptions for those in [advanced] religious studies, the sudden appreciation of the shekel weakening performance in the trade sector, regulations that make securing property rights more difficult, a higher-than-OECD-average poverty rate, the fact that debt-to-GDP ratio is still at 68 percent, lack of integration of Haredi and Arab Israeli citizens, decreased portfolio inflows, and the reemergence of regional geopolitical tensions. Looking at Annex II in the IMF report, my educated guess is that while Israel's credit ratings will remain stable, it will take at least two to four years for the Israeli economy to work out some of its issues before credit rating agencies even begin to consider upgrading Israel's sovereign credit rating.
For further reading:
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