Moody’s Investors Service issued a warning on Thursday, suggesting a potential credit rating downgrade for Israel due to the gravity of the military conflict with Hamas. Such a downgrade could result in higher borrowing costs for Israel, coming at a challenging time as the country braces for a potentially protracted war.
Moody’s remarked that Israel’s credit profile has previously demonstrated resilience in the face of terrorist attacks and military conflicts. Nevertheless, the current military conflict’s severity raises concerns about a longer-lasting and significant impact on its credit standing.
Extend beyond the standard three-month period
The credit ratings firm indicated that their evaluation will center on the conflict’s duration, scale, and how it affects Israel’s credit profile and economy, institutions, and public finances. This review process may extend beyond the standard three-month period.
Moody’s had previously expressed concerns in July, before the deadly terror attacks by Hamas against Israel, regarding a controversial overhaul of Israel’s judicial system that posed risks to the country’s stability, economy, and security.
In July, the Israeli parliament enacted a law that curtailed the Supreme Court’s authority to obstruct government decisions. This move triggered widespread protests, threats of labor strikes, and investor divestment.
Ratings Watch Negative
Furthermore, Moody’s has now initiated a review of several of Israel’s government credit ratings, including its long-term foreign-currency and local-currency ratings, due to the ongoing conflict. Moody’s emphasized that while Israel’s credit profile has typically withstood terrorist attacks and military conflicts, the current intensity of the conflict introduces the possibility of a more sustained and substantial impact on its creditworthiness.
This statement from Moody follows a recent announcement from Fitch Ratings, which placed Israel’s A+ foreign- and local-currency issuer default ratings on “Ratings Watch Negative.” Fitch’s decision was based on concerns about the heightened risk of a broader military confrontation involving various actors over an extended period in Israel’s ongoing conflict.
US Secretary of Defense Lloyd Austin and Saudi Defense Minister Khalid bin Salman engaged in a telephone discussion regarding their security partnership and the latest developments in the Middle East.
In an earlier address, President Joe Biden made a direct appeal to the American public, urging their support for funding Israel and Ukraine’s war efforts. He emphasized the dual threats posed by Hamas and Russian President Vladimir Putin to US democracy.
Biden’s prime-time speech came ahead of an official request from the White House to Congress, seeking approximately $100 billion in funding for Israel, Ukraine, and Taiwan, and addressing security concerns at the US southern border. The Pentagon has reported an increase in drone attacks in Iraq and Syria, while an American destroyer in the Red Sea intercepted cruise missiles and drones that were launched toward Israel.
