Israel received its first downgrade in history on Friday after Moody’s Investors Service downgraded Israel by one notch, citing the impact of the military conflict with Hamas on its finances, according to Bloomberg, taken by Agerpres.

Benjamin NetanyahuPhoto: JINI / Xinhua News / Profimedia

Moody’s downgraded Israel’s sovereign rating from “A1” to “A2”, the sixth rating in the “investment grade” category, on par with the ratings of Poland and Chile. At the same time, Moody’s also changed the outlook related to the rating from “stable” to “negative”, ending a review procedure that began in October.

The conflict with Hamas and its fallout will “significantly increase political risk for Israel and weaken its executive and legislative institutions and fiscal soundness for the foreseeable future,” Moody’s said in a press release issued on Friday, adding that it is expected “Israel’s debt burden will be much higher than expected before the conflict.”

Netanyahu’s reaction to the downgrade

Israeli Prime Minister Benjamin Netanyahu said that this decision does not reflect the state of the Israeli economy.

“This is entirely because we are at war. The rating will go up as soon as we win the war,” Netanyahu said.

The conflict with Hamas, which broke out four months ago, is affecting Israel’s public finances and deepening the budget deficit. The budgetary toll from Israel’s worst armed conflict in 50 years is also forcing the government to rely more heavily on debt to finance its needs as it must pay the bill for the war, which the Central Bank estimates will be 255 billion shekels ($69 billion) between 2023 and 2025

Israel’s economic prospects largely depend on keeping the conflict under control. Since the start of the war, all three major rating agencies have issued warnings about the Israeli government’s credit rating.

On October 25, 2023, S&P Global Ratings became the latest of the three agencies to change its country rating outlook to negative.

At that time, Fitch Ratings and Moody’s had already changed Israel’s rating outlook to “negative” or put Israel’s rating on review for a possible downgrade.