New Israeli Shekels
New Israeli ShekelsiStock

International credit rating agency Fitch Ratings said on Thursday that it is encouraged by the passage of state budgets for 2021 and 2022 in Israel.

In an update for investors, Fitch said, according to Globes, "The Israeli Knesset’s passage of budgets for 2021 and 2022 reduces political uncertainty and potential risks to the public finances, affirming the government’s capacity to advance legislation. The budget approval is in line with our expectations when we affirmed the sovereign rating at ‘A+’ with a Stable Outlook in July 2021."

Fitch said it sees the passage of the budgets as demonstrating that Israel's disparate governing coalition can work, and as positive for political stability.

"The coalition agreement does not include another hard vote deadline that could topple the coalition until August 2023, reducing risks to political stability after a protracted period of heightened uncertainty and caretaker governments," Fitch noted, but added, "Nonetheless, the risk of other factors destabilizing the coalition remains."

On the fiscal deficit, Fitch found that Israel's public finances are recovering faster than it had expected from the effects of the COVID-19 pandemic.

"According to the new budget, the deficit target is 6.8% of GDP in 2021 and 3.9% in 2022, down from a peak of 11.4% in 2020 due to the pandemic. The improvement in the public finances this year has been driven by the strong economic rebound, the gradual withdrawal of the pandemic support measures, and particularly buoyant fiscal revenue from high-tech sectors," the agency's report stated.

The company also noted structural reforms in the Economic Arrangements Law for 2021 and 2022 accompanying the budgets, saying, "Among other things, it raises the pension age for women, eases trade and import barriers, advances deregulation, and encompasses measures to facilitate the economy’s transition to using renewable energy sources."

Finance Minister Avigdor Liberman responded to the report and said, "Approval of a state budget for the first time since 2018 has ensured the stability of the government for the coming years, and the Economic Arrangements Law contains structural reforms that will support sustainable growth alongside maintenance of the fiscal framework."

A week ago, the Knesset approved the budget for 2021, with 61 MKs voting in favor and 59 voting against it.

A day later, it also approved the state budget for 2022 in its second and third readings by a majority of 59 to 56.