Moody's has downgraded Israel's credit score from A1 to A2 due to the war with Hamas. This is the first such downgrade in Israel's history.
The new rating I still considered investment grade, but is expected to make it more difficult for both public and private borrowers in Israel to secure loans.
The rating agency's report based the decision on an “assessment that 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.”
Particular concerns included the nearly doubled military spending from 2022 and the likelihood that it would rise even higher in the coming years, bringing with it an increased budget deficit.
The rating also cited the prisoner exchange negotiations and the issue of humanitarian aid to Gaza: “While there are currently negotiations underway to secure the release of the hostages against a temporary ceasefire and more humanitarian aid into Gaza, there is no clarity on the likelihood, time frame and durability of such an agreement,” the agency said.
The agency also noted the increasing hostilities against Hezbollah and the possibilities of a wider conflict in the Middle East: "The severity of the current military conflict raises the possibility of longer lasting and material credit impact. Conflict with Hezbollah would pose a much bigger risk to Israel’s territory."
Prime Minister Netanyahu dismissed the report: "Israel's economy is strong. The credit rating reduction is not connected with the economy - it is entirely based on the fact that we are at war. The rating will rise again the instant we win the war, and we will win."
Finance Minister Bezalel Smotrich claimed the report was intended as a tool of political pressure and did not genuinely reflect Israel's economic situation: “Israel's economy is strong in every way. It is capable of supporting all of the war efforts, on the front and at home, until the victory that we will achieve with the help of God and the bravery of our soldiers, and of returning to its path of accelerated growth.”
“Hamas-ISIS went out to the October 7th Massacre with the goal of damaging Israel and the Jewish people spiritually and physically, and eventually to kill them all. Since then, it and its world have been meeting Israel's bravery and unity, its capacity for resilience and determination to defeat evil and once again illuminate the good in Israel and the world. Hamas will not defeat us, neither on the battlefield nor economically.”
“Moody's announcement that it is reducing Israel's credit rating does not include serious economic consideration and is exclusively a political manifest based on a pessimistic and incorrect geopolitical worldview, which shows a lack of faith in Israel's security and national resilience, and also apparently from lack of faith in the just cause against Israel's enemies. Moody's is not capable even of defining Hamas and Hezbollah as terrorist organizations in their announcement, and hints that it would have refrained from reducing the credit rating had Israel accepted the suicidal deal proposed to it by the international community to end the war and establish an Arab terrorist state in Gaza, Judea, and Samaria.”
“We do not draw our national, security, societal, and economic power from how the world thinks of us, but rather from a deep faith in our just cause which is based on a glorious history of thousands of years and our commitment to an even more glorious future. Moody's announcement will not change that, and will not weaken us in the war for our independence and sovereignty over our homeland.”
“I thank our Accountant-General, the governor of the Bank of Israel, and the other professionals in Israel's economy for their efforts concerning the rating agency. Together, with God’s help, we will be victorious and continue to lead Israel's economy with responsibility and judgment, and navigate it to a safe harbor.”