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Credit rating agency Moody’s has postponed its upcoming credit rating report on Israel from spring to September, amid ongoing geopolitical and security concerns, as well as internal political developments, according to officials familiar with the matter.
Moody’s, which downgraded Israel’s credit rating three times over the past year, is not expected to issue another downgrade in the near future. The company opted instead to publish a warning notice to investors last week, highlighting Israel’s geopolitical risks. The advisory was released on the same day the Knesset approved the state budget, which included broad cuts to social programs.
The decision to delay the formal rating update followed a series of virtual meetings between Moody’s economists and top Israeli economic officials. For the first time, the meetings were conducted by economists from Moody’s U.S. headquarters, rather than its European division.
Sources briefed on the discussions said Moody’s analysts do not currently see justification for another downgrade and plan to revisit the matter in about six months. Officials who participated in the talks said the agency’s analysts expressed particular concern over the government’s proposed judicial reforms, but were reassured by the scale of nationwide protests, which they viewed as evidence of a still-functioning democracy. They also noted that some of the planned legislative measures are likely to be overturned by Israel’s Supreme Court.
While renewed military activity across multiple fronts remains a point of concern, Moody’s noted a decrease in the intensity of fighting. The agency believes that under pressure from U.S. President Donald Trump, a new deal to return hostages — including an American citizen — could soon be reached, potentially accompanied by a renewed cease-fire.
Analysts were also encouraged by recent developments in Israel’s high-tech sector, including the sale of two companies for a combined total of about $35 billion. The deals are expected to generate significant tax revenues for the Israeli government in the coming months.
“I sensed a shift in approach from the U.S.-based economist compared to the Europeans,” a senior Israeli official who met with Moody’s told Ynetnews. “There’s greater recognition that Israel’s economy remains strong and stable. Since oversight moved to the U.S. office during the Trump administration, the agency’s evaluations of Israel have improved.”
Separately, Finance Ministry officials said implementing the Bank of Israel’s recent recommendation to raise taxes in the 2026 budget would be difficult. The central bank’s annual report proposed raising income taxes for middle-income earners, specifically those in income deciles 5 through 8, to address Israel’s widening deficit.
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Government sources and lawmakers, however, ruled out any tax hikes in an election year. Instead, Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich have signaled plans to reduce taxes in the coming year to ease pressure on households and businesses ahead of elections.
Despite recent tax increases — including a 1 percentage point hike in value-added tax to 18%, higher National Insurance contributions, and a freeze on tax brackets and benefits — Israel’s overall tax burden remains about 5% lower than the OECD average. Civilian public spending is also approximately 9% lower than the OECD average relative to gross domestic product.