Economy – Moody's downgrades Israel's credit rating; Government criticizes the agency

First modification: 02/12/2024 – 18:18

It is the first time in history that Moody's reduces Israel's credit rating and, in addition, adds a “negative outlook” to the new note.

The agency's suspicious view is a wake-up call for investors seeking to measure the risk of investing in a global entity or government and shows the state of solvency of the Israeli economy for the rest of the world.

This entity, in particular, handles a scale from 'AAA' to 'C', from best to worst rank, where Countries such as Sweden, the Netherlands, Norway and New Zealand maintain a triple 'A' reputation; while Mozambique, Sri Lanka or Tunisia move in the letter 'C' range, which represents credit defaults and maximum risk for investors.

For Israel, the economic directors of the financial group determined a step down from 'A1' to 'A2', in a subcategory that would be in the middle of the letter 'A' and before reaching the 'Baa'.

Israeli government does not agree with the decision

Upon learning of the agency's determination, Israeli government officials reacted angrily and returned comments to Moody's in order to reduce the harshness of the rating.

The head of the Ministry of Finance, Bezalel Smotrich, pointed to the agency's analysis, arguing that the downgrade was based solely on “political situations” and that “it does not include serious economic claims.”

Israel's prime minister also spoke out in response to Smotrich's words, reminding Moody's that Israel's economy was “strong” and that “the downgrade is entirely due to the fact that we are at war.”

Netanyahu also promised the financial sector that the rating would “go up again” once the war was over.

And, according to analysts consulted by AP, Much of the decision was based on Israel's current war with Hamas in the Gaza Strip and the possible risks of the conflict extending to the northern border in Lebanon.with the Iranian-backed Hezbollah group.

Analysts have a different opinion and argue that even before the rating agency's announcement, Israel was already reporting complex financial data.

“Already, by the way, before they did it, we have seen that the market risk, which is measured by the interest rate that Israel pays in dollars on the debt, was already increased. So, basically, it seems like a very natural,” said Professor Zvi Eckstein, director of the Aaron Institute for Economic Policy at Reichman University, who also explained that an escalation of the conflict to Lebanon would undoubtedly lower Israel's rating even further.

For its part, the Israeli Central Bank also echoed the Government's line, downplaying the rating downgrade, but urging Parliament to address the issues raised by the agency.

To strengthen the confidence of the markets and rating companies in the Israeli economy, “It is important that the Government and (Parliament) Knesset act to address the economic issues raised in the report.”said Amir Yaron, governor of the Bank in reactions reported by several local media.

“It is important to remember the high growth potential of the economy and the structural surplus of the current account balance,” added Yaron, and recalled that Israel has had other moments of tension and geopolitical crisis in the past where “there was never any delay in payment of public debt.”

With AP, Reuters and local media.