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Credit rating agency Moody’s issued a special report Tuesday warning investors about the political and security situation in Israel, while maintaining the country’s credit rating at Baa1 with a “negative outlook.” The report did not include any immediate rating action but highlighted significant concerns regarding Israel’s political stability.
“The credit rating of Israel currently reflects very high political risks that weaken the country’s economic resilience,” Moody’s economists wrote in the report. While they acknowledged that Israel’s institutions remain strong, the agency emphasized that they have “weakened significantly in recent years.”
Moody’s, the world’s second-largest credit rating agency, reiterated that Israel’s negative outlook could lead to a future downgrade. The agency also said that the Israeli government’s actions are contributing to the current situation alongside the ongoing conflict.
Tensions with the US could impact Israel’s rating
Moody’s identified several factors that could trigger a further downgrade, including the outbreak of a full-scale conflict posing substantial risks to Israel’s economy and infrastructure, the expansion of hostilities into a regional war involving Iran, or a deterioration in relations with key allies, particularly the United States.
The agency said it would consider stabilizing Israel’s outlook if there were clear signs of easing security tensions and if Israeli institutions could implement policies supporting economic recovery while restoring security.
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A senior official at the Finance Ministry told ynet that the report “is not severe” and largely repeats previous warnings. “There is no downgrade at this point, and it is important to emphasize that,” the official added.
Economic concerns extend beyond the war
Ynet has learned that Moody’s economists held virtual meetings with senior ministry officials on Tuesday. The agency reportedly expressed greater concern over the government’s advancement of judicial reforms than the resumption of fighting in Gaza following the collapse of the Gaza cease-fire.
Last week, economists from Fitch Ratings, the world’s third-largest credit rating agency, visited Israel and held in-person meetings with economic leaders. They voiced similar concerns about legislation that could weaken Israel’s democratic institutions. Next week, S&P Global Ratings will begin similar discussions with Israeli officials.
All three agencies, including Moody’s, are expected to release semi-annual reports on Israel’s economy within the next month.