Bibi Netanyahu and his government have set new records.
Israel’s credit rating downgraded for the first time in history. One of the most expensive countries in the world is about to become even more expensive. Of course, the war in Gaza cannot be painless for the Israeli economy, but there is absolute certainty that it was Netanyahu’s talents that served as the root cause.
The possibility of a downgrade became known about a month ago, when Moody’s began intensive negotiations in the Ministry of Finance to influence the planned decision. The chief auditor, Yali Rothenberg, went to Washington, but his efforts were in vain.
The international rating agency Moody’s has decided to lower Israel’s credit rating by one level to A2. This was the first downgrade in the country’s history. In addition, Moody’s has placed a negative outlook on the rating, predicting a possible further decline. This decision may increase the cost of Israel’s borrowing, making it more expensive. A downgrade may also make investing in Israel less attractive. In light of the country’s growing budget deficit, which exceeds 50 billion shekels, the outlook is bleak.
Moody’s wrote that “the change in outlook from positive to stable reflects the deterioration of Israel’s governance, as evidenced by recent events related to the government’s proposal to reform the country’s judicial system … the government has attempted to carry out wide-scale reform without seeking a broad consensus indicating a weakening of institutional strength and predictability of policy. As a result, the risks to Israel’s rating are now balanced, leading to a stable outlook.”
“The consequences of the current confrontation with Hamas, both during and after its end, significantly increase political risks for the state of Israel, weaken the legislative and executive branches of government and damage the financial stability of the country in the foreseeable future,” the report says.
Reasons for the downgrade
There are several main reasons why Moody’s decided to lower Israel’s credit rating. One of the reasons is the government’s profligate policies, which have led to an increase in the budget deficit. Spending on coalition commitments has significantly increased the burden on the country’s budget. This made Israel less financially stable and affected its credit rating.
Another reason for the downgrade is the weakening of Israel’s legal system. The lack of independence of the judiciary and problems in combating corruption negatively affect the country’s business environment and investment climate. Moody’s believes that these issues could adversely affect Israel’s economic development and its ability to meet its financial obligations.
■ The Israeli government transfers money to groups that do not further the economy – instead of cutting such spending.
■ The government’s refusal to raise taxes to reduce the government deficit for 2024.
■ Fear that Israeli and foreign companies will withdraw from activity in the Israeli market
■ Fears of capital flight and the departure from Israel of entrepreneurs and wealthy citizens.
■ Fears of a slowdown in Israeli high-tech.
■ Fears of a prolongation of the war.
Impact of the downgrade on Israel
A downgrade of Israel’s credit rating could have serious consequences for the country’s economy. First, it will lead to an increase in the cost of borrowed funds. Higher interest rates on foreign loans will make them less affordable and more expensive for the government and private companies in Israel. This may limit opportunities for investment and economic development.
In addition, the downgrade may affect Israel’s attractiveness to foreign investors. Investors typically focus on credit ratings when making investment decisions. A downgrade could make Israel less attractive for investment, which could lead to a reduction in foreign capital inflows.
Budget Deficit and Outlook
The downgrade of Israel’s credit rating comes amid the country’s growing budget deficit. Israel’s budget deficit exceeds 50 billion shekels, which is a serious problem for the economy. A large deficit requires additional borrowing, which can increase the country’s debt burden and reduce its financial stability.
Moody’s downgrade and negative outlook create a bleak outlook for Israel. If the situation does not change and the government continues to pump funds into coalition obligations, the country’s rating may be lowered further in the future. This could lead to additional borrowing costs and a reduction in investment in the country.
Moody’s decision did not surprise the Prime Minister and the head of the Ministry of Finance. Both made the usual statements that the Israeli economy is strong and the downgrade is not related to the economy, but solely to the war. “The rating will rise again as soon as we win the war,” Benjamin Netanyahu promised. However, there was much less optimism in business circles. The talk of a downgrade began long before the war.
There are fears that if current trends continue, this decline will not be the last. And no one rules out that other agencies, including Standard & Poor’s and Fitch, will follow Moody’s.
Earlier, we wrote that the New York Times newspaper does not consider the option of voluntary withdrawal among its forecasts regarding the departure of Bibi Netanyahu from his post.
