ISRAEL

RISK RATING
Moderate
Default High Risk Score 3.50
Normal Average 2.02
Weighted Average 1.96
RISK RATING HISTORY
RISK RATING SCALE

Risk Rating Scale

Severe: 8.0 to 10
High: 6.0 to 7.9
Elevated: 4.0 to 5.9
Moderate: 2.0 to 3.9
Low: 0.0 to 1.9
EXCHANGE RATE
Country Outlook

Israeli Prime Minister Benjamin Netanyahu will be weakened in 2021 as he faces greater scrutiny from US allies, presides over an economy battered by lockdowns, and battles a court case on bribery, fraud, and breach of trust charges. However, the economy is set for a swift recovery in case of a vaccine against the coronavirus, while Netanyahu has been boosted by the US-brokered normalisation of ties with several Arab countries. However, forging ties with Arab states is unlikely to provide momentum to seek a two-state solution for Israel and Palestine. Israel will oppose any US renegotiations of the JCPOA nuclear deal with Iran and will apply the so-called Begin Doctrine to use military force to stall Iran’s development of atomic weapons. This scenario puts Israel at risk of war with Iran and its proxies, notably Lebanon’s Hezbollah.

  • A unity government between Prime Minister Netanyahu and Defence Minister Benjamin Gantz, who is also the alternate prime minister, is teetering on the brink of collapse as the coalition cannot agree on budgets and other issues. The unity coalition deal was signed in April 2020 to end over a year of political deadlock. Yet, there is an ongoing feud between Netanyahu’s Likud and Gantz’s Blue and White parties over how to deal with Israel’s coronavirus infection rate, while attempting to minimize damage to the economy. Meanwhile, Netanyahu is now the first serving Israeli prime minister to face criminal prosecution, in a case he calls a political witch-hunt. A judicial challenge to the Basic Law that props up the power-sharing coalition could send Israel to elections or even a constitutional crisis.
  • Israel’s security outlook is persistently threatened by cross-border attacks and violent incidents within its own territory. The immediate threat is derived from Hamas in the Gaza Strip and Hezbollah in neighbouring Lebanon. The military (IDF) have deployed its Iron Dome missile defence system to the border areas, as well as other strategic positions inside the country, and has finalised plans for a military response to any attacks on its interests. In the longer run, Israel faces a potential threat from Iran and its allies. Israel will not allow Iran to develop nuclear weapons and might face retaliatory attacks in case of pre-emptive action against Iran. However, relations with many Arab countries are improving following the normalisation of ties with several former enemies. Israel’s qualitative military edge remains assured by the US.
  • The pandemic-battered economy is set for a swift recovery in 2021 due to Israel’s robust market, flexible monetary policy, relatively strong pool of local savings, and access to domestic and international capital markets. Israel’s offshore natural gas reserves and tech sectors are also positives for the post-pandemic outlook. The main threats to Israel’s credit rating are its relatively high level of debt and geopolitical risks. The pandemic has caused unemployment in Israel to surge to record levels this year, and many small businesses have suffered critical damage. A political feud has also stalled economic stimulus and the passage of budgets.
CUMULATIVE AND DAILY COVID-19 INFECTIONS AND DEATH RATE
INTERNATIONAL MONETARY FUND | DATAMAPPER
Risk Perils
Political Instability
2.5
Expropriation, Nationalisation, Confiscation & Deprivation
1.0
Contract Frustration & Breach
1.0
Taxation
1.5
Bribery & Corruption
1.5
Regulatory Burden
2.0
Strikes, Riots & Civil Commotion
2.2
Security
3.5
Sovereign Default
2.0
Economic Volatiliy
3.0

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