Moody’s, one of the major rating agencies, has downgraded Israel’s credit rating from A1 to A2, making it the first time in the country’s history that such a downgrade has occurred. The decision comes as a result of the prolonged war between Israel and Hamas, which has taken a toll on the country’s finances and economy.
According to Moody’s, the ongoing military conflict with Hamas, its aftermath, and wider consequences have significantly raised political risk for Israel, weakened its executive and legislative institutions, and impacted its fiscal strength for the foreseeable future. The agency also highlighted the projected higher budget deficit due to increased military spending, with defense spending expected to nearly double the level of 2022 by the end of 2024.
The downgrade to Israel’s credit rating is expected to have implications for the country’s borrowing costs, making it more expensive for Israel to borrow money. Moody’s also warned of the potential involvement of Hezbollah, an Islamist group with paramilitary forces to the north of Israel, which could pose a significant risk to Israel’s territory.
The decision by Moody’s reflects the economic and political burden that the prolonged war with Hamas has placed on Israel. The conflict has resulted in thousands of human casualties and has stoked geopolitical tensions around the world. While an A2 rating is still considered investment grade, the downgrade highlights the challenges Israel faces in the aftermath of the war and the need for careful management of its finances.
In conclusion, Moody’s downgrade of Israel’s credit rating from A1 to A2 is a significant development that reflects the toll of the prolonged war with Hamas on the country’s finances and economy. The downgrade highlights the increased political risk, weakened institutions, and projected higher budget deficit due to increased military spending. Israel now faces the challenge of managing its finances and borrowing costs in the aftermath of the war. The potential involvement of Hezbollah also poses a significant risk to Israel’s territory.