The Governor of the Bank of Israel, Amir Yaron, has urged the Israeli occupation government to address the issues raised by Moody’s after the credit rating agency downgraded the sovereign credit rating of the occupation. Yaron spoke about Israel’s ability to recover from the effects of the Gaza war.
Moody’s downgraded Israel’s credit rating for the first time ever to “A2” from “A1” last Friday, while maintaining a “negative” credit outlook, indicating the possibility of further downgrades.
Yaron stated on Sunday that it is important for the government and the Knesset to address the economic issues highlighted in Moody’s report to bolster market confidence and rating agencies in the Israeli economy. He added that Israel knows how to recover from challenging times and quickly return to prosperity, emphasizing the country’s capability to ensure that once again this time.
Yaron has been urging the government to maintain financial discipline and reduce spending on non-war-related goods in Gaza since the Islamic Resistance Movement (Hamas) attack on October 7th.
Moody’s warned on Friday of significant political and financial risks due to the war, stating that Israel’s budget deficit would be much larger than expected before the conflict.
The downgrade, if prolonged, could lead to increased borrowing costs for Israel, budget cuts, higher taxes to control the deficit, and higher interest rates for Israeli companies and households. Additionally, a temporary downgrade could result in a decrease in stock prices on the Tel Aviv Stock Exchange and a decline in the Israeli currency (Shekel) against foreign currencies in the near future.
Moody’s projected that Israel’s debt-to-GDP ratio will likely reach 67% by 2025, up from 62.1% in 2023.
Decision-makers preliminarily approved the revised official budget for 2024 last week, allocating tens of billions of shekels to finance the war, compensate the affected, and increase this year’s expected budget deficit to 6.6% of GDP from 2.25%.
Standard & Poor’s agency mentioned in January that it might downgrade Israel’s credit rating if the war with Hamas extends to other fronts. The debt of the Israeli government reached around 1.08 trillion shekels ($294.2 billion) by the end of the third quarter of 2023, with indications of an increase over time due to loans and fundraising for war needs through foreign currency bond issuances by the Israeli Ministry of Finance.
