The assassinations of Hezbollah's leadership in Lebanon must not be allowed to obscure the very grave economic development that occurred last weekend – Moody's decision to lower Israel's credit rating by two notches, after having previously lowered it by one notch in February. This is a harsh and unprecedented step that reflects a loss of faith in Israel's government and its policies.
The problems include Israel's geopolitical situation, the continuation of the war with no plan to end it, the government's irresponsible budgetary management, its delays in submitting a budget for 2025, its refusal to move forward on drafting the ultra-Orthodox at a time when it is increasing the burden on reservists and thereby harming the labor market, and the reckless reckless trolling by Justice Minister Yariv Levin, who refuses to appoint a new Supreme Court president and is working to weaken the legal system.
Usually, a credit rating company examines macro data and draws inferences from it about the ability of a country or company to meet its obligations to foreign investors. Moody's harsh report said the risk that Israel won't pay its debts has risen. It also pointed to a decline in the quality of its institutions and its government, which were ineffective in taking steps that could have reduced the harm to its credit rating.
Moody's economists don't care who serves in the army and who doesn't. But when the defense budget soars and is expected to grow by additional hundreds of billions of shekels over the coming decade, that necessarily raises the following question: Why extend compulsory military service by four months and increase the burden on reservists, both of which harm the labor market and growth, instead of drafting ultra-Orthodox men studying in yeshivas (and being paid government stipends for doing so)?
When Moody's economists see the government evading its duty to distribute the burden in a way that would be better for the economy, they lose faith in its ability to make rational decisions.
Consequently, they also doubt Finance Minister Bezalel Smotrich's assertion that he will submit a budget for 2025 with a deficit equal to 4 percent of gross domestic product. Instead, they predict that next year's deficit will equal 6 percent of GDP.
Moody's economists also said that the ongoing conflict and the lack of any clear path for solving it are creating high social tensions, endangering Israel's foreign trade and undermining its relationships with key allies.
The company praised civil society and the courts for their role in reining in the government, but said they are weaker than it had previously thought.
Moody's language wasn't diplomatic, but it also wasn't as blunt as it could have been in saying what its economists really think about the government and its policies.
Had they been less polite, they would have written that this is a terrible, irresponsible, dangerous government. The necessary conclusion from reading the report is that this government's time in office must end.
The above article is Haaretz's lead editorial, as published in the Hebrew and English newspapers in Israel.