Moody's Potential Downgrade Threatens Israel's Economic Stability
Israeli economics platform Calcalist has reported that Moody's may be preparing to lower Israel's credit rating, which could plunge the nation into deeper financial uncertainty. If the downgrade occurs, investors are expected to reassess the quality of Israeli debt more cautiously, leading to reduced exposure and increased risk. This scenario could force the government to raise unprecedented amounts of money, further straining an already fragile economy.
Significant Decline in Expected US Aid
One of the most pressing concerns highlighted by Calcalist is the significant reduction in anticipated US aid. Initially projected at $8.7 billion for 2024, recent estimates suggest that Israel may only receive $3.5 billion, with $5.2 billion confirmed as not arriving this year. This shortfall creates a financial gap of approximately NIS 18-20 billion ($4.8-5.4 billion), equating to about 1% of Israel's GDP. Consequently, the Ministry of Finance may need to increase the spending ceiling and budget deficit, potentially reopening the 2024 budget for the third time in history.
Rising Defense Spending Amid Geopolitical Tensions
The expected drop in US aid raises alarms about Israel's defense budget, with the military already allocating $5.2 billion for special defense projects. Should tensions with Hezbollah escalate, the government may face the necessity of finding internal funding, placing the financial burden on Israeli taxpayers. Moreover, if the conflict intensifies, it could lead to a fourth budget review in 2024, resulting in chaotic public finances. Analysts warn that the current surge in domestic consumption may be fleeting, driven by high travel costs and security concerns, further complicating Israel's financial outlook.
