Moody’s Downgrades Israel’s Credit Rating: Finance Minister Reacts

On Sunday, Israel’s Finance Minister Bezalel Smotrich strongly rebuked Moody’s decision to lower the country’s credit rating, characterising it as a “political manifesto” lacking “serious economic claims”. Moody’s cited the ongoing war in Gaza and the potential for conflict with Hezbollah as a threat to Israel’s economy, resulting in a downgrade from A1 to A2 with a “negative” outlook.

Prime Minister Benjamin Netanyahu attributed the downgrade to the current state of war, expressing confidence that the rating would improve once the conflict was resolved. However, Israeli officials are concerned that Moody’s decision could prompt other major agencies to follow suit, thus impacting the government’s ability to raise funds through bond sales.

Michel Strawczynski, a professor of economics at the Hebrew University in Jerusalem, cautioned about the potential impact of a prolonged war on Israel’s economy. While the country has historically recovered from conflicts with Hamas, the ongoing war has strained resources due to extensive military spending and the mobilisation of reserves.

Bank of Israel Gov. Amir Yaron, however, emphasised that the Israeli economy has displayed resilience and recovery, even within the first month following the outbreak of war. Nonetheless, Israel has faced challenges unrelated to the conflict, including concerns about governance, inflation, and a global slowdown in tech investments.

Moody’s report also highlighted Prime Minister Netanyahu’s proposed judicial overhaul, which raised concerns about the country’s investment climate. However, the agency praised the checks and balances that resulted in the shelving of the judicial overhaul in January.

As Israel continues to navigate through economic and political challenges, the impact of Moody’s downgrade remains uncertain. The country’s entrepreneurial spirit and resilient economy provide hope for a strong recovery, but the ongoing conflict and other internal issues pose significant hurdles to overcome.

It is imperative for the Israeli government to address the concerns raised by Moody’s and other financial agencies to restore confidence in the country’s economic stability and pave the way for future growth and development.