Moody’s warns of rating consequences of escalation

Commenting on the security situation in Israel and its impact on the country’s sovereign rating, Moody’s, the global credit rating agency, said yesterday that the exchange of fire between Israel and Hezbollah on Sunday represents an escalation, but the economic and human costs remain limited and in line with the baseline scenario.

“We continue to assume that ongoing tensions will not escalate into a full-scale military conflict between the two sides or extend to include Iran, limiting the immediate credit-negative impact on the region,” Moody’s said, adding, “However, a full-scale military conflict with Hezbollah or Iran could have significant credit-related consequences for Israeli debt issuers.”

In recent weeks, several international bodies have issued comments and warnings about the impact of the war on the Israeli economy. Last week, the American bank Citi released an analysis of the economic situation in Israel, emphasizing the uncertainty caused by the fact that there is no end in sight to the conflict. “The Israeli dollar spreads have already moved away from a neutral relative value against A-rated credits, and the changing geopolitical environment makes it very difficult to predict when the next point of ‘rating repricing’ will occur,” the bank wrote, adding that the rating issued by Moody’s appears to be the most vulnerable.

Two weeks ago, Fitch downgraded Israel’s rating from A+ to A, with a negative outlook, saying: “The downgrade to A reflects the impact of the ongoing war in Gaza, heightened geopolitical risks and military operations on multiple fronts. Public finances have been damaged and we expect a budget deficit of 7.8% of GDP in 2024 and debt to remain above 70% of GDP over the medium term. In addition, World Bank governance indicators are likely to deteriorate, weighing on Israel’s credit profile.”

This article was published in Globes, Israeli Business News – en.globes.co.il – on August 28, 2024.

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