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Fitch Ratings has upgraded Israel’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to ‘A+’ from ‘A,’ great news for Israel’s economy and a testament to its stability and growth.

The outlooks on the long-term IDRs are stable, Fitch announced on Friday.

The issue ratings on Israel’s senior unsecured Foreign- and Local-Currency bonds are upgraded to ‘A+’ from ‘A’. Fitch has also upgraded the Short-Term Foreign- and Local-Currency IDRs to ‘F1+’ from ‘F1’ and the Country Ceiling to ‘AA’ from ‘AA-‘.

The upgrade of Israel’s IDRs reflects several key rating drivers. Israel’s external balance sheet has continued to strengthen, resulting in account surpluses.

Likewise, Fitch expects Israel’s net external creditor position to be 43% of GDP in 2016, an improvement from 35.1% in 2014 and 23% in 2008 when we last upgraded Israel’s IDRs.

Further gas sector development will lend additional support to the external balance sheet. Production at the Tamar gas field off the coast of Israel, which commenced in 2013, has reduced the need for gas imports. The controlling consortium is aiming for production to start in 2020.
Israel also benefits from high financing flexibility, among other key factors.

Israel’s ratings will continue to be constrained by political and security risks, Fitch wrote, but its credit profile has shown resilience to periodic conflict and political shocks over an extended timeframe.

Although Israel’s borders are currently relatively quiet, conflicts with military groups in surrounding countries and territories flare up intermittently and can be damaging to economic activity, the International ratings agency pointed out. However, Fitch assumes regional conflicts and tensions will continue, but their impact on Israel will not worsen significantly.

Renewed conflict with Hamas in Gaza is possible, despite a serious degradation of Hamas’s military capacity. The tolerance of the rating depends on the economic and fiscal implications of any conflict. Fitch does not assume any breakthrough in the peace process with the Palestinians or a prolonged serious deterioration in domestic security conditions.

By: Max Gelber, United with Israel