International credit rating agency Moody’s has released a harsh rating action report on the Israeli economy, downgrading the country’s rating by two notches from A2 to Baa1, an unprecedented move with a negative outlook. The new rating puts Israel on par with countries such as Kazakhstan.
“The main reason for the downgrade is that geopolitical risks have increased significantly and to very high levels, which in our view is having a material negative impact on Israel’s creditworthiness in the short and long term,” Moody’s said. There is,” he said.
Moody’s further added: “In the longer term, we believe the Israeli economy will be more permanently weakened by the military conflict than previously expected. “We can no longer expect a swift and strong economic recovery.” Furthermore, a delayed and slower economic recovery, coupled with a longer and more extensive military operation, could have a more permanent impact on public finances, making the prospects for stabilization of public debt ratios even more remote than previously predicted. Deaf, we see. The significant increase in geopolitical risks also points to a decline in the quality of Israel’s institutions and governance, which has not been able to fully mitigate actions that are detrimental to Israel’s credit metrics.
“A serious escalation of the conflict with Hezbollah could result in a significant rating downgrade, especially if Israel’s economic and financial strength is further weakened.The risk of a broader escalation involving Iran remains low. Uncertainties surrounding Israel’s security and long-term growth prospects are much higher than is typical at the Baa rating level, particularly for the highly agile high-tech sector. Long-term risks could have serious implications for government finances and public finances, including further deterioration of institutional quality.
“We now expect real GDP growth to be only 0.5% this year, and our growth forecast for next year has been significantly lowered to just 1.5% from 4%,” Moody’s said.
“As a result, we expect the government debt ratio to stabilize later and to a higher level than previously assumed. We currently expect the debt ratio to rise towards close to 70% of GDP, but 10% of GDP. compared to expectations of a decline towards 50% before May 7.
This downgrade was more severe than most market expectations. While the downgrade itself is not surprising, most forecasts were for a one-notch downgrade, not two at once. The move means Moody’s will downgrade Israel’s rating by three notches in the coming months, after announcing the first downgrade in Israel’s history in February last year.
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The main reason for the downgrade is the intensifying security situation in the north. Moody’s representatives recently met with senior Israeli officials and business leaders. In parallel with military developments, Moody’s has been closely monitoring how the Cabinet approved scrapping the 2024 budget line and delayed passage of the 2025 budget, despite warnings from Treasury and Bank of Israel officials. Ta.
Comptroller General Jari Rotenberg said: “The credit rating agency Moody’s decision is excessive and unwarranted. The strength of the rating action taken does not correspond to the fiscal and macroeconomic data of the Israeli economy. It’s clear that there are.” Although it is hurting the Israeli economy, there is no basis to justify the rating agency’s decision.
“At the same time, decisive and swift steps must be taken to approve the national budget for 2025, which must maintain a deficit of up to 4% of GDP and lead to the rebuilding of fiscal reserves. The national budget must encourage growth engines, investment in infrastructure, consideration of social needs, and addressing Israel’s defense requirements. ”
An unusual situation has arisen in which the world’s three major rating agencies each rate Israel differently. Moody’s has the lowest rating of Baa1, which is comparable to other agencies’ BBB rating. Fitch rates Israel one notch higher at A, while S&P rates Israel at A+.
Published by Globes, Israel Business News – en.globes.co.il – on September 28, 2024.
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