Israeli confidence sinking – MENA Q1 results

Jeremy Weltman
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Morocco is still riskier than Israel, of course, which scores 64.3 points – almost 10 more than Bahrain, the next safest MENA sovereign, which is still ranking some 15 places above Morocco.

This is reflected in credit default swap (CDS) spreads, measuring the cost of insuring against default, which show a widening gap between the two during the past couple of years.

However, the CDS market might not be fully pricing in the relative risks, for while Morocco’s fortunes are gradually improving, confidence in Israel has slipped. The 2.3 point score loss, resulting in a drop of four places in the rankings since end-December, is one of the largest falls in the region (alongside troubled Egypt).

Although Israel has notable strengths, not least its bank stability and its monetary policy/currency stability, both of which score highly and have been upgraded during the past year, a range of other economic, political and structural risks are clouding its appeal.

The country is still managing to weather the storm still enveloping the region and its medium-term economic prospects have been bolstered by the discovery of offshore gas reserves. However, the current fiscal deficit is likely to encourage new finance minister Yair Lapid to raise taxation and cut back on spending in the budget, which could impair its economic fortunes.

Still, despite low scores for corruption and government stability, not to mention the internal and external conflict tensions the Jewish state faces on a virtual daily basis, Israel’s investor risks are not excessive, particularly as it has a strong record of state payments and capital repatriation.

This article was originally published in Euromoney Country Risk.