Prime Minister Benjamin Netanyahu of Israel sought to soothe public worry on Saturday after a major ratings agency downgraded Israel’s credit score for the first time in years. The prime minister said the damage would be reversed after the war with Hamas ends.
“Israel’s economy is robust,” Mr. Netanyahu said in a statement. “The downgrade is not related to the economy, it is entirely due to the fact that we are at war. The rating will rise again as soon as we win the war — and we will win.”
Moody’s, one of three major rating agencies alongside S&P Global Ratings and Fitch, announced late Friday night that it would downgrade Israel’s credit to A2 from A1 and noted that the outlook for the country was negative because of the ripple effects of the military campaign in Gaza. (Rating agencies often rank countries from the top AAA bracket down to C or D.)
Moody’s had begun reviewing Israel’s status after the Hamas-led Oct. 7 attacks, which started the current war with Hamas fighters in Gaza. S&P and Fitch also began to re-examine Israel’s credit rating in November but have yet to take any action.
In its assessment, Moody’s said elevated risks for investors were quite likely to persist in Israel “into the medium to long term.” Moody’s cited concerns over a possible second war with Hezbollah, a militant group in Lebanon; the lack of clarity over when and how Israel’s war with Hamas in Gaza would end; and the country’s failure to adopt a clear plan for a postwar settlement in Gaza.
“The Israeli government has so far rejected such plans,” the agency wrote in its downgrade assessment. “Moreover, even if a plan is eventually agreed, its durable success will be, for a long time, highly uncertain.”
Yair Lapid, the leader of Israel’s parliamentary opposition, called the Moody’s announcement “further proof that this government is not functioning and is harming the public.” Mr. Lapid, a sharp critic of Mr. Netanyahu, reiterated his call for a new Israeli government to be formed.
Another opposition politician, Avigdor Lieberman, said, “the government of destruction continues to drag us down to economic catastrophe, just as it brought a security catastrophe upon us on Oct. 7.”
Moody’s also highlighted rising public debt and budget deficits, in part because of a sharp increase in wartime military spending, as risks. Israel’s public debt will rise to 67 percent of its gross domestic product in 2023 from 60 percent in 2022.
Shaul Amsterdamski, an economics editor at the Israeli Public Broadcasting Corporation, said the announcement was unlikely to immediately affect the national economy. But he said the Moody’s assessment sent an “extremely negative message to investors, showing that the economic resilience which Israel has enjoyed for decades has been damaged.”
Mr. Amsterdamski also dismissed Mr. Netanyahu’s contention that the credit rating would rise again as soon as the war ended, noting that the ratings agency had said the economic outlook for the country was negative, indicating further downgrades could come down the road.
If the government had passed a slimmer budget — cutting spending on ministries widely criticized as extraneous, for example — the agency’s risk assessors might have provided a brighter outlook, Mr. Amsterdamski said.
“The deficit had to increase so as to fund the war, but it could have been less,” he said. “Before going to borrow money, the government should have tried to show investors that it was getting its house in order.”
Bezalel Smotrich, the finance minister of Israel and a right-wing politician, said in an interview on Israeli television that the Moody’s decision had more to do with political considerations than the strength of the country’s economy.
“Five or six economists sit down in New York and give us grades over whether we went for a cease-fire or didn’t, whether we’re prepared to establish a Palestinian state in Gaza or not, and they decide to lower our rating because, in their opinion, we aren’t doing things correctly from a political standpoint,” he said on Channel 12. “That’s absolutely ridiculous.”
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