Israel's Credit Rating Downgraded by Moody's

Moody's, one of the three big global credit ratings agencies based in New York's financial district, announced on Friday that it was downgrading Israel's credit rating from A2 to Baa1 with a negative outlook, meaning it expected to downgrade it again in the next review. At the beginning of the current war, Moody's credit rating for Israel stood at A2, and this is the second time it has been downgraded.

The analysts who made this decision said in their advisory report that Israel's government did not have an exit strategy for the current war and in general lacked solid plans for the future. This was cited as a major factor in their analysis that the country is at high risk for domestic political turmoil as well being subject to growing regional and even geopolitical instability.

Finance Minister Bezalel Smotrich, who has been severely criticized for his handling of the Israeli economy, gave a laconic response to Moody's downgrade, saying simply that the governing coalition he's part of "will pass a responsible budget with necessary restraint measures" adding "Israel's economy bears the burden of the longest and most expensive war in the country's history. It is a war of existence that we must continue until victory, which will allow us many years of peace, security, and economic growth."

However, Moody's report included a point that Israel's economy will be "more durably weakened by the military conflict than expected earlier," adding that they "no longer expect a swift and strong economic recovery as in previous conflicts."

It also said that "the significant escalation in geopolitical risk also points to diminished quality of Israel's institutions and governance, which have not fully mitigated actions detrimental to the sovereign's credit metrics."

Israel's credit rating is now lower than at any time since 1995, and it will make it much more difficult and expensive for the government to both acquire new lines of credit and pay the interest on existing debt. These increased expenses are expected to be passed on to Israeli businesses, households and families in the form of higher taxes and a reduction in both the level and quality of public services.