Moody's Investors Service has affirmed Israel's long-term local and foreign-currency ratings at "Baa1", while maintaining a "negative" outlook, citing heightened fiscal pressures linked to the ongoing geopolitical situation.
According to the agency, Israel's fiscal position has deteriorated due to elevated geopolitical risks following the outbreak of hostilities in October 2023. Moody's now anticipates that the country's debt-to-GDP ratio will peak at approximately 75% in the medium term, reflecting increased defense expenditures and a slowdown in economic growth. This marks a revision from the agency's earlier estimate of a 70% peak.
Despite these pressures, Moody's pointed to Israel's strong market access and ability to secure funding, including successful bond sales during recent conflict periods, as factors that help contain borrowing costs.
"Renewed conflict would also threaten Israel's economic strength through potential material damage to infrastructure and the weakening of security conditions that could weigh on investment and overall economic activity," Moody's noted.
The agency also cited economic resilience, with recovery beginning in late 2024 and continuing into early 2025. Investment and consumption have supported this rebound, particularly in the high-tech sector, which saw $2.2 billion in investments in Q1 2025.
Real GDP is projected to grow by around 2% in 2025 amid ongoing challenges, but Moody's expects a stronger recovery to 4.5% in 2026, driven by reconstruction and higher spending.
The assessment follows recent commentary from other major ratings agencies. In May, S&P Global upheld Israel's "A/A-1" ratings but warned that an extended or escalating conflict could negatively impact fiscal and economic performance. Similarly, Fitch Ratings stated last month that while the fallout from the conflict with Iran is significant, it remains within the scope of Israel's current "A" rating, which carries a negative outlook.