Bank of Israel Governor Amir Yaron said on Sunday that the country’s economy is strong and will recover from the effects of the war, but urged the government to address the problems raised by Moody’s after the financial rating agency downgraded Israel’s sovereign rating, Reuters reported. from news.ro

In order to increase the confidence of the markets and rating companies in Israel, it is important that “the government and the Knesset act to address the economic issues raised in the report. We have known how to recover from hard times in the past and quickly return to prosperity, and the Israeli economy has the strength to ensure that it will be the same this time,” Yaron said.

Following the massacre of civilians in Israel by the Palestinian Islamist group Hamas on October 7, the central bank governor urged the government to maintain fiscal discipline and cut spending on items unrelated to Israel’s retaliation against the group in Gaza.

In Israel’s first downgrade, Moody’s on Friday downgraded the country’s rating from A1 to A2, five notches above investment grade, and left its credit outlook negative, signaling the possibility of further downgrades.

Moody’s cited significant political and fiscal risks caused by the war, adding that “Israel’s budget deficit will be significantly larger than expected before the conflict.”

If the cuts continue, or if they lead to other similar moves, it will raise the cost of borrowing for Israel and could lead to budget cuts and tax hikes to keep the budget deficit from spiraling out of control.

Moody’s noted that Israel’s debt-to-GDP ratio is likely to reach 67% by 2025, up from 62.1% in 2023.

However, this ratio was much higher in the past, during Israel’s economic crisis, but “there was never a delay in paying off the national debt,” Yaron said.

Last month, S&P Ratings told Reuters it may downgrade Israel’s credit rating if the war with Hamas spreads to other fronts.

Last week, lawmakers initially approved a revised state budget for 2024, which added tens of billions of shekels to finance the war and compensate victims, and increased this year’s budget deficit to 6.6 percent of GDP from 2.25 percent.

Prime Minister Benjamin Netanyahu responded to Moody’s action on Friday, saying “the rating will go up again as soon as we win the war – and we will.”