Moody’s cuts Israel’s rating by two notches

The International Credit Classification Agency has issued a harsh report on the classification of the Israeli economy, announcing in an exceptional move that it reduced the country’s rating by two degrees from A2 to BAA1, with a negative future look. The new classification places Israel equally with countries such as Kazakhstan.

“The main engine to reduce the classification is our view that geopolitical risks have intensified significantly, to very high levels, with negative financial consequences on Israel’s credit wall in the short and long term,” Moody’s wrote.

“In the long term, we believe that the Israeli economy will weaken permanently due to the military struggle for what was expected earlier. As the security risks (social consideration) increased, we no longer expect a rapid and strong economic recovery as was the case in previous conflicts.” On the other hand, the late and slow economic recovery, along with a longer and broader military campaign, will more continuously affect public finance, which increases the possibility of stability in the public debt rate, compared to our previous expectations. The great escalation of geopolitical risks also indicates the low quality of Israeli institutions and the rule that has not fully reduced the procedures harmful to sovereign credit standards.

“The extreme escalation of the conflict with Hezbollah may be consistent with a significant classification, especially if Israel’s economic and financial power is exposed to more weakness. The risk of a wider escalation that includes Iran remains existing, although it is still low. Understanding is the expectations Related to Israel’s security and long -term growth is much higher than that is customary at the BAA classification level, with long -term risks on the high -tech technology sector in particular that may have serious effects on government financial resources that may represent more corrosion in institutional quality.

Moody’s expected the real GDP growth by only 0.5% this year, and we have reduced our expectations for growth next year to only 1.5%, from 4% previously.

“Accordingly, we expect the proportion of government debt to stabilize later and at a higher level than before. We expect that the debt rate will increase approximately 70% of GDP, compared to our expectations of a decrease of about 50% before October 7. “.

Reducing the classification is more severe than most of the expectations expected in the market. The reduction in itself is not surprising, but most expectations predicted the classification of one degree, and not two degrees at the same time. With this step, Moody’s complements the reduction of the Israel classification three degrees within months, after it announced last February the first absolute reduction in the history of Israel.

This reduction is mainly due to the escalation of the security situation in the north. Recently, Moody’s representatives held talks with senior Israeli officials and economic figures. In addition to the military developments, Moody’s closely continues how the cabinet agreed to violate the 2024 budget framework and delay the approval of the 2025 budget, despite the warnings of senior officials in the Ministry of Finance and the Bank of Israel.

“The decision of the credit rating agency Moodyz is excessive and unjustified,” the general accountant Yali Rottenberg said. Which negatively affects the Israeli economy, but there is no justification for the classification company’s decision.

At the same time, decisive and fast steps must be taken to approve the state budget for 2025. The budget must lead to the rebuilding of financial reserves, by maintaining a maximum deficit of up to 4% of GDP and returning to the course of improvement. ” Reducing the percentage of debt to GDP The state budget must encourage growth engines and investment in infrastructure, taking into account social needs and responding to Israel’s defensive requirements.

A rare situation has arisen, as both the three major credit rating agencies in the world have obtained various classifications for Israel. Moody’s got the lowest rating of the BAA1, which is equivalent to BBB at other agencies. Fitch Israel is classified at one A+, while Standard & Poor’s Israel is holding Israel at A+.

Posted by Globes, ISRAEL BUSINASS News – En.globes.co.il – on September 28, 2024.

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