Moody's lowered Israel's credit rating to "A2-A2" with a negative outlook (Getty Images)
Occupied Jerusalem -
The decision of the international credit rating agency "Moody's" to reduce Israel's credit rating to the A2 level with a negative outlook carried within it many messages that suggested the depth of the stormy crisis in the Israeli economy due to the war on the Gaza Strip, and expectations of a widening of the cumulative deficit. In the general budget, and the high debt burden in Israel.
The agency described its decision with a “negative outlook” to downgrade the rating, which may lead to another downgrade of the rating, if Israel’s security, geopolitical and economic situation deteriorates, due to the war on Gaza or if a comprehensive war breaks out on the Lebanese border with Hezbollah.
In April 2023, Moody's lowered its expectations for Israel's rating from "positive" to "stable", due to fear of the repercussions of the amendments to the judicial system initiated by the Israeli government headed by Benjamin Netanyahu, and the protests that followed.
A burning war for Israel's economy
It is expected that the reduction - the first of its kind since Israel's inclusion in the credit rating in 1998 - will lead to:
Increasing the interest rate on loans that Israel is forced to obtain due to the ongoing war on the southern front, and security instability on the northern front.
Interest rates will also become more expensive for Israeli companies and households.
The reduction may lead - even temporarily - to a decline in stock prices on the Tel Aviv Stock Exchange.
The reduction will lead to a decline in the exchange rate of the Israeli currency (the shekel) against foreign currencies in the near future.
The decision comes at a time when the Israeli government's debts amounted to about 1.08 trillion shekels ($294.2 billion) at the end of the third quarter of 2023, and it appears that they have risen since then, as a result of loans and raising funds for war needs, as the Israeli Ministry of Finance collected 125 billion shekels ($35 billion). dollars), through public bond issues abroad in foreign currency.
According to estimates by reporters and economic analysts, the effects of the Gaza war on Israel's credit standing will extend for a long period, perhaps beyond the period of actual fighting, and the negative impact on Israeli institutions and public finances may prove to be much more serious than that.
Israel's credit rating reflects the increased social and political risks associated with the current conflict on the southern and northern fronts, the weak security situation in Israel, the Netanyahu government's considerations regarding the continuation of the fighting, and its ambiguous position regarding the day after the war.
Great pressure on Israel
The downgrade did not surprise the Prime Minister and senior officials in the Israeli Ministry of Finance. “They tried to prevent the downgrade decision and spoke to economists at the rating agency,” says Yedioth Ahronoth newspaper’s economic affairs correspondent, Gad Lior.
He pointed out that Netanyahu tried to convince the rating agency that Israel's economy is stable and that there has never been a case in which Israel did not repay debts on time or did not quickly emerge from an economic crisis, as happened with the immediate exit from economic difficulties during the Corona pandemic crisis.
He pointed out that the Israeli government asserts that the downgrade has nothing to do with the economy, but is entirely due to the fact that Israel is waging a war on Gaza, which the government considers to be an additional international pressure card on Israel for a ceasefire and an end to the fighting.
Netanyahu's government denies responsibility for the credit rating downgrade (Israeli Government Press Office)
Fears and damage
Gad Lior explained that the Israeli Ministry of Finance expresses concerns about the consequences of the two other major rating companies, Standard & Poor's and Fitch, reducing Israel's credit rating soon if the war on Gaza continues and security tensions escalate for a comprehensive confrontation with Hezbollah on the front. North.
It is likely - says the economic affairs correspondent - that the rating will decline further “if the situation in the north escalates into a large-scale conflict with Hezbollah,” which will also include a greater negative impact on infrastructure and the ability of the Israeli economy to recover.
It is expected that Israel's credit rating will decline further if a decline in the performance and capabilities of Israeli institutions is observed, especially with the continued need to employ resources for security response and military action. This will increase the possibility of economic or financial damage in the medium term, beyond Moody's current expectations.
Disability and recovery
The same reading was reviewed by Calcalist economic newspaper correspondent Adrian Vilot, who confirmed that the decision to reduce Israel's credit rating is due to the repercussions of the Gaza war on the Israeli economy, as well as to the lack of a clear plan for the Israeli government for the future of Gaza after the end of the fighting.
Vilot explained that Moody's experts emphasize the political, economic and social aspects to explain the unprecedented step to lower Israel's rating.
He said, "The decision is another form of pressure on Israel to reach an agreement to stop the fighting on the Gaza front, return to security stability, and avoid a comprehensive confrontation with Hezbollah."
It is clear from the decision, says Vilot, that “Moody’s doubts the ability of the current Israeli leadership to manage the next day, recover from the fighting, and emerge from the economic crisis, due to the high cost of the war, which has unprecedentedly spread the general budget deficit.”
He pointed out that Moody's did not believe the story of Israeli Finance Minister Bezalel Smotrich and Netanyahu, who tried to convey a message that the updated 2023 and 2024 budgets are "responsible" and can save the Israeli economy and push it towards recovery and exit from the crisis.
Gap and strike
The credit rating downgrade - says De Marker economic analyst Avi Wachsman - is “primarily a blow to Israel’s image and position in global markets, as it is still difficult to determine the extent of the decision’s repercussions and its financial effects on Israel.”
Apparently - Faxman adds - “buying debt securities for any country whose rating drops becomes less attractive to investors, as they demand a higher interest rate on their money. If this is the case, a downgrade in the rating will make the Israeli government’s interest expenses high, and even more expensive.” ".
It is believed that the decision to downgrade the rating obliges the Israeli government to increase debt bond issuances to finance the general budget deficit - the gap between government revenues and expenditures - which jumped to 4.8% of GDP at the end of last January, which is the cumulative deficit in the last 12 months, while It is expected to reach 6.6% of GDP by the end of 2024.
However, the same economic analyst says that “the economic damage of the war, or at least the most likely scenario of its development, is already reflected in the interest rate that the government has to pay when it recruits and borrows money abroad, amid concerns about the issuance of tradable bonds on international capital markets.” , in order to finance its activities and concerns about loan repayment.”
Source: Al Jazeera