Moody's Warns of Potential Credit Downgrade for Israel Amid Escalating Conflict
Moody's credit rating agency has issued a stark warning regarding Israel's financial stability, indicating a potential downgrade of the country's credit rating due to the ongoing war in the Gaza Strip. This warning comes as tensions escalate, raising significant political and financial risks for Israel. Just a month ago, Moody's highlighted that a full-scale military conflict involving Hezbollah or Iran could have dire credit implications for Israeli debt issuers.
In February, Moody's had already downgraded Israel's credit rating to A2 with a negative outlook. The agency attributed this decision to the rising debt burden anticipated before the conflict in Gaza, stating, "We continue to assume that ongoing tensions will not escalate into a full-scale military conflict between the two sides or extend to include Iran, which will limit the immediate credit downside impact on the region."
Recent reports from the Israeli economics platform Calcalist suggest that Moody's is preparing to lower Israel's credit rating further, potentially pushing the economy into a deeper state of uncertainty. Should this downgrade occur, investors are likely to reassess the quality of Israeli debt, which may lead to reduced exposure and increased financial risk. Calcalist warns that this scenario could force the Israeli government to raise unprecedented amounts of money, exacerbating an already fragile financial situation.
With the possibility of Israel's rating dropping from A2 to A3 or even Baa1, the implications for the country's financial position could be severe. A Baa1 rating, while still considered investment grade, is viewed as significantly riskier, potentially deterring institutional investors from purchasing bonds in this category. Even those who remain invested may reassess their exposure, compelling the government to seek substantial funds to stabilize the economy.
