On Friday, ‘Moody’s’ announced its decision to lower Israel’s credit rating. A credit rating is a tool that lenders and investors around the world use to assess the feasibility of investing in a particular country, and to get a measure that reflects the credibility of the country in debt repayment – both in purpose and in ability. That means, that in practice, the credit rating measures the stability of the state, politically and economically. there was little doubt that one of the consequences of the war, which includes such a sudden and excessive expenditure of funds, would affect the credit rating.
Moody’s is not the only company in the ranking business – there are also the big ‘Fitch’ and ‘S&P’ companies – but it is the main one, and its decision is expected to affect the other companies. Last year, these companies made a lot of headlines in Israel, fearing that the political instability caused by the legal reform would lead to a downgrade; but in practice, the ratings did not decline then. This is the first time in Israel’s history that the credit rating has fallen. In addition, the credit rating outlook has also become negative – that is, the company expects more future declines, mainly due to forecasts for the war in the north.
The effects of the reduction are vast, and will mainly lead to greater difficulty for the state in finding loans and financing – which will require it to increase the interest rate it will pay, and this will increase the burden of debt on the state budget. Nevertheless, it is very important to note that the decline is not drastic and large – but rather a decrease from A1 to A2, two of the highest levels that the rating company has to offer.
“The Israeli economy is strong. The downgrade has nothing to do with the economy, and it’s all about us being at war. The ranking will rise again as soon as we win the war – and we will win,” said PM Netanyahu. Moody’s report also cited Israel’s positive economic conduct in the war so far, and made it clear that the decline of the rating depends mainly on the fog of war and the uncertainty regarding the future of the fronts. In addition, the rating agency promised that “we will update the rating outlook to ‘stable’ if after the conflict has ended there is evidence that the institutions of the State of Israel are able to formulate and lead policy measures that will support the economic recovery.” We have dealt with economic potholes in the past, and there is no doubt that we will deal with this one as well, whose correction depends mainly on us.
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