Senior figures in the Israeli market who have recently been in contact with international rating agency Moody's economists are worried the decision to downgrade Israel's credit rating for a second time is gaining momentum at the corporation.
The estimations come due to the geopolitical situation in the Middle East and the lack of significant steps taken by the government to address the substantial issues that arose in Israel's economy, including the freezing of discussions to formulate a state budget for 2025.
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Prime Minister Benjamin Netanyahu, Moody's, Finance Minister Bezalel Smotrich
(Photo: Marc Israel Sellem, Reuters, Noam Moskovitch, Knesset Spokesperson)
According to information seen by Ynet, Moody's economists have already begun engaging with senior figures in the Israeli economy and have scheduled meetings for early September in order to hear their opinions and impressions on the country’s economic situation and various sectors within the Israeli market.
Following these initial contacts, leading figures in the market, as well as government officials and senior Finance Ministry members, are increasingly of the opinion that only decisive and swift government action to reduce the country’s deficit, minimize the need for new debt and increase involvement in sectors that have encountered difficulties could still prevent further downgrades.
"Unfortunately, I’m under the impression the company's credit downgrade is only a matter of time," an economic official told Ynet on Monday. Moody's was the first to downgrade Israel's credit rating for the first time ever in February 2024, and the same official predicted the downgrade at the time as well. "I was, sadly, right at the time, and I'm afraid the same will happen now," he said.
The Finance Ministry’s Accountant General Yali Rotenberg has been in close contact with senior credit rating agency officials and recently met with them as well. Rotenberg presented data showing that the Israeli economy is resilient even during wartime and explained a state budget for 2025 would include measures to strengthen Israel's economy and prevent unusual deficits in the state budget.
Moody's was the first to downgrade Israel's credit rating on February 9 to A2, also adding a negative outlook, which hinted at the possibility of another downgrade. In the severe report it published, the company expressed concern about the ongoing war in Gaza and the escalation on the northern border and noted the government's weakness in the economic sector as one of the main reasons for the decision.
On April 18, the world's largest credit rating agency, Standard & Poor's (S&P), also downgraded Israel's credit rating to A+ and added a negative outlook. Last week, the third agency, Fitch Ratings, also downgraded Israel's credit rating by one notch to A and added a negative outlook as well.
Due to concerns over the potential downgrade, Prime Minister Benjamin Netanyahu recently held two brief meetings on the 2025 state budget with Finance Minister Bezalel Smotrich, however, without the presence of other ministry officials. The timing and manner of these consultations have been criticized by economic officials, including those at the Finance Ministry.