In a matter of weeks, possibly by the end of the month, American credit rating agency Standard & Poor's is expected to lower Israel's sovereign credit rating from A- to BBB, economic sources in Jerusalem estimate.
Officials from the Accountant General's office in the Ministry of Finance, headed by Nir Gilad and his deputy, have made efforts to convince the ratings agency's economists to leave the rating unchanged. The two are currently abroad for discussions but the signs in the meetings are not encouraging. About a month ago, S&P put Israel on "negative watch" with the possibility of a rating reduction, and even after publication of the treasury¿s emergency economic plan the company announced it planned to maintain the watch.
Sources on Israeli financial markets estimated that, barring a surprising economic or political move, the lower rating is inevitable. "The only reason for a possible postponement is that the volume of Israeli government bonds traded abroad is very low, so there is no great pressure from institutional investors to receive rapid updates on the quality of the bonds," a dealer at one of the foreign banks active in Israel stated.
The ramifications of the lower rating include a possible drop in the price of Israeli government bonds traded overseas, as well as a drop in the bond prices of government companies such as the Israel Electric Corporation and Bezeq (TASE: BEZQ ). In addition, the reduction will lead to an increased cost of capital for Israel in overseas fundraising.