Moody's Lowers Israel's Credit Rating for Second Time Amid Escalating Security Situation -
Credit rating agency Moody's downgraded Israel's credit rating to Baa1, down two levels. This comes in response to intensified fighting with Hezbollah.
Friday's downgrade reflects not only the geopolitical escalation but also Moody's lack of confidence in the Israeli government's ability to manage fiscal consolidation and reduce debt.
In February, Moody's downgraded Israel's rating to A2 for the first time in the country's history.
A lower credit rating makes government bonds less appealing to investors, who may then demand higher interest rates to compensate for the increased risk. As a result, Israel could face higher costs when borrowing money, which would increase government spending on interest payments. This could further strain the country's budget at a time when both its security and economic challenges are growing.
In May, Moody's reaffirmed Israel's A2 rating but warned of the risk of an escalation into a full-scale military conflict with Hezbollah or Iran. The rating remained A2, equivalent to A among other agencies, but with a negative outlook.
Rescuers check the destruction following an an Israeli airstrike in the southern Lebanon.Credit: AFP/Rabih Daher
All three major rating agencies – Moody's, S&P, and Fitch – attached negative outlooks to Israel's bonds during the current conflict. A further downgrade could occur if Israel's fiscal situation deteriorates more than expected or if the security situation worsens.
Moody's economists noted in May that Israel's key economic indicators are developing as expected following the February downgrade. They forecast weak GDP growth of just 0.6 percent for 2024, assuming military actions end by the year's end. In contrast, the Bank of Israel predicted 2 percent growth back in April.