Israel conflict lowers economy
Moody’s downgrades Israel’s credit rating
February 10, 2024, 1:03 p.m
Listen to article
This audio version was artificially generated. More info | Send feedback
Moody’s is the first major rating agency to take this step: it downgrades the country’s credit rating. It is said that a further escalation of the military conflict would significantly weaken the economy. The rating agency S&P could soon follow Moody’s.
The US rating agency Moody’s has downgraded Israel’s credit rating because of the Gaza war. Israel’s grade was lowered by one notch from A1 to A2, Moody’s announced. The rating agency explained that the “military conflict with Hamas” and its consequences would “increase political risk for Israel and weaken its executive and legislative institutions and its fiscal strength for the foreseeable future.”
Moody’s also cut its outlook for Israel’s debt to “negative,” citing “the risk of escalation” in the conflict between Israel and the Hezbollah militia in Lebanon. The agency assumes that military spending will double compared to 2022, resulting in an increase in national debt.
What does the downgrade mean?
It is common for rating agencies to reassess a country’s creditworthiness after a major event that could affect its ability to repay lenders. Credit ratings are required by many investors who buy the debt of companies and countries as an indicator of the likelihood of getting back the money they borrowed. A rating of A2 still means a high creditworthiness, but with the downgrade Moody’s is the first of the three major rating agencies to assess the economic consequences of the conflict as dire.
The second major rating agency, S&P Global Ratings, has also been reassessing Israel’s creditworthiness since October and is scheduled to update the country’s credit rating on May 10. The ratings agency noted in a November report that Israel’s diversified economy and strong technology sector should boost its wartime finances. At the same time, however, she warned that a further escalation of the conflict to regions outside the Gaza Strip could have a major influence on her decision-making. “We could downgrade Israel’s ratings if the conflict escalates significantly and security and geopolitical risks to Israel increase,” said S&P analysts.