A recent report by Global credit rating agency Moody's lauded the Israeli government's fiscal policy but criticized its inability to pass a state budget.
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The 31-page report, issued on Friday, said that while the agency expects that "the domestic political environment will continue to be highly polarized," Moody's has decided to reaffirm Israel's sovereign rating at A1.
The rating has been unchanged since 2008.
The agency named Israel's overall economic stability, its robust high-tech sector, and forecast of rapid economic recovery from the coronavirus-triggered recession in 2021, and the country's economic resilience vis-à-vis external crises as the reasons for its decision.
However, Moody's said that it has downgraded Israel's score for "institutions and governance strength," citing the prolonged political crisis.
"We have witnessed a deterioration in fiscal policy effectiveness in recent years, driven in part by a more polarized political environment," the agency's report said, adding, "Politicians have increasingly sought to challenge the country's judicial system which may, over time, reduce the effectiveness of the courts to act as a check on the exercise of government power.
"At the same time, public confidence in the country's politicians has been eroding as Israeli leaders have been at the center of a number of scandals involving bribery and abuse of power."
Commenting on the findings, Finance Minister Israel Katz said that Moody's "believes in the strength of the Israeli economy and in its ability to recover rapidly from the [coronavirus] crisis.
"In addition, Israel's macroeconomic policy and the aid the government has extended to the public were given a positive mention. I will continue to assist business owners, self-employed Israelis, and salaried workers and provide them with solutions during this challenging period," he said, adding he will continue to push for government approval of the 2021 state budget.
The Knesset is slated to vote on the state budget on Dec. 23. Under Israeli law, if the government fails to pass the budget – the vote on which has already been postponed this year – parliament will be dissolved and early elections must be called.
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