ByREUTERS, JERUSALEM POST STAFF
Updated:
Credit ratings agency Moody’s on Friday concluded its review of Israel and downgraded the country to “A2” from “A1”, citing material political and fiscal risks for the country due to its war with Hamas.


“A2” is five notches above investment grade, while its credit outlook was kept at negative by Moody’s, meaning a further downgrade is possible.


“While fighting in Gaza may diminish in intensity or pause, there is currently no agreement to end the hostilities durably and no agreement on a longer-term plan that would fully restore and eventually strengthen security for Israel,” Moody’s said in a statement.


Moody’s said the credit rating drop came following an assessment of Israel’s current climate. “The ongoing military conflict with Hamas, its aftermath and wider consequences materially raise political risk for Israel, as well as weaken its executive and legislative institutions and its fiscal strength, for the foreseeable future,” the statement said.


The agency also mentions the looming threat of escalation with Hezbollah along the Israel-Lebanon border. Moody’s sent a warning to Israel shortly after the October 7 massacres, just days before a scheduled rating review that a prolonged war with Hamas could drag down the country’s credit score.
Graph showing recession economy
Graph showing recession economy (credit: PIXABAY)

Following Moody’s downgrading on Friday, Prime Minister Benjamin Netanyahu issued a statement that “the Israeli economy is strong. The rating downgrade is not connected to the economy; it is entirely due to the fact that we are in a war.

Finance Minister Bezalel Smotrich also commented on the rating, saying the decision linked to the Gaza war was not based on sound economic reasoning and was tantamount to a pessimistic “manifesto.”

Smotrich stressed that “the Israeli economy is strong by all measures. It has the ability to support all of the war efforts, in the battlefield and in the rear, until victory will be achieved with the help of God and the bravery of the soldiers.”

Opposition Leader Yair Lapid commented on the credit agency’s announcement saying that this is “further proof that this government is not functioning and is harming the public,” he wrote on X.

He added that “for over a year, this government has neglected growth in the economy, brought in a profligate and irresponsible budget, and even during the war there is not one minister among 38 ministers who works for the Israeli economy. An economy of ‘with the help of God’ and ‘there is money for everything’ has failed. The State of Israel needs a new and functioning government.” 

October 7 massacre leaves nation, and economy, in distress

Surprise attacks by Hamas had sparked the worst escalation in violence in 50 years and raised questions about not just the humanitarian cost, but the economic toll as well.

Moody's, which was scheduled to review Israel's "A1 stable" rating, said the chances of a downgrade would depend on how the war develops.

The Israeli political scale had been threatening Israel's credit rating score for months, previously citing Netanyahu's government and reforms.