Israel’s Finance Minister Slams Moody’s Credit Rating Downgrade

Israel’s Finance Minister has forcefully criticized Moody’s decision to lower Israel’s credit rating, labeling the move as politically motivated rather than grounded in solid economic reasoning. Moody’s adjustment, the first of its kind for Israel, was based on concerns that the ongoing conflict in Gaza and potential hostilities with Hezbollah in the north could detrimentally impact the nation’s economic stability.

Despite the downgrade from A1 to A2, which still suggests a relatively secure investment according to Moody’s standards, Finance Minister Bezalel Smotrich contended that the decision undermines faith in Israel’s security and moral stance in its confrontations. Prime Minister Benjamin Netanyahu also responded, asserting the strength of Israel’s economy and attributing the downgrade solely to the war’s effects, promising an economic rebound post-conflict.

The downgrade raises apprehensions among Israeli officials about possible similar actions from other significant rating agencies, potentially complicating Israel’s financial strategies for raising funds through bond sales. According to Michel Strawczynski, a noted economics professor and former Bank of Israel research department head, the duration of the conflict will be pivotal in determining the economic impact.

Although Israel has recovered economically from previous engagements with Hamas, the current conflict’s extended duration, significant military spending, and substantial reservist call-ups are exerting unprecedented pressure on the economy.

The Bank of Israel Governor, Amir Yaron, countered Moody’s announcement with an optimistic view of the Israeli economy’s resilience and signs of recovery as early as November, a month following the onset of the war. The Israeli economy, known for its technological innovation and competitive edge, has faced challenges beyond the conflict, including governance concerns, inflation, and a global downturn in tech investments, further strained by controversy over proposed judicial reforms aimed at reducing the judiciary’s influence, which Moody’s previously suggested could dampen the investment climate. The report commended the strong checks and balances that led to the reform’s suspension in January.