Finance Ministry officials to 'Post': Moody's rating drop was premature, a step too far

Ratings agency Moody’s “went one or two steps too far” and were “very conservative” in their downgrade of Israel’s rating late last month, senior officials within the Finance Ministry’s Accountant General Department told The Jerusalem Post.

“We respect Moody’s, and the government should listen carefully and address the relevant comments. However, our professional stance is that, at the very least, Moody’s has taken [it] one notch too far at this time,” they said.

The downgrade dropped Israel by two notches, from A2 to Baa1—the country’s lowest score ever—and maintained a negative outlook for its rating.

“A major part of what the credit rating should represent is […] the ability of the country to repay its foreign currency debt,” the officials explained, adding that Israel’s “ability to repay foreign currency is very strong.”

Israel has had a surplus of more than 5% in the current account for 20 years, the officials said, adding that this is “fairly structural,” as the country exports more than it imports typically.

They added that the Bank of Israel also holds “the highest ever reserve of foreign currency,” which is nearly four times as high as the external debt, showing Israel’s strong ability to repay foreign debt.

The officials said that senior economists believe that, in some sense, Moody’s treated a “worst-case scenario” as the “main-case scenario.”

This means that they made the assumption that “the country’s economic recovery will be very long and that the debt-to-GDP ratio will grow substantially.”

Officials believe scenario is ‘exaggerated’

While this scenario is legitimate, “we think it is exaggerated,” the officials told The Jerusalem Post, adding that they think it is premature to make the assumptions made in Moody’s base case.

“As long as there is a good and responsible budget here that is aimed at growth, and the security situation improves, we can expect a more rapid rebound in the economy.”

Tel Aviv University Prof. Dan Ben-David, who heads the socioeconomic research center Shoresh Institution, highlighted the uncertainty surrounding Israel’s economy despite the confidence projected by Finance Ministry officials.

“Just a glance at last week’s major revision by [Israel’s] Central Bureau of Statistics – its third downward revision of GDP – gives a pretty good idea about how little we actually know with regard to the actual severity of the situation, which is continuously being revised downward,” he said.

“We are in mid-October, and the government is only now beginning to contemplate the budget for next year while our finance minister is MIA. Given his comments and areas of focus, that is probably for the better, as incredulous as that might seem given the gravity of the moment we are in.”

Earlier this month, Bank of Israel Governor Professor Amir Yaron highlighted the importance Moody’s rating, which could impact Israel regardless of whether or not it was premature or exaggerated.

“It is important to pay attention and take the assessments of the rating agencies seriously, as they reflect the challenges and risks faced by the Israeli economy as the world sees it,” Yaron explained.