Israel’s credit rating downgraded over fears of regional escalation

Ratings agency S&P Global cut Israel’s long-term ratings to A-plus from AA-minus on Thursday evening, after the confrontation with Iran intensified last weekend and amidst the already geopolitical risks for Israel.

“We forecast that Israel’s general government deficit will widen to 8 per cent of GDP in 2024, mostly as a result of increased defense spending,” S&P Global said in its statement.

“We currently see several possible military escalation risks, including a more substantial, direct, and sustained military confrontation with Iran,” it noted.

Get The Jewish News Daily Edition by email and never miss our top stories Free Sign Up

The downgrade came just hours before Israel struck back at Iran following the weekend’s attacks.

In addition to the dropped rating, S&P also published a negative long-term rating outlook, which means there could be an additional downgrade in the future.

S&P noted: “A wider regional conflict, which is not our baseline scenario, could have a further material negative impact on Israel’s security situation and, consequently, its economic, fiscal, and balance-of-payments parameters. We lowered our sovereign credit ratings on Israel to ‘A+/A-1’ from ‘AA-/A-1+’. The outlook on the long-term ratings is negative.”
Earlier this month, Fitch removed Israel from “rating watch negative” and kept its A-plus rating, but cited Israel’s war against Hamas in Gaza as a risk.

In February, Moody’s downgraded the country’s credit rating on war risks.

The accountant general at Israel’s Ministry of Finance said in statement that the decision by the S&P rating agency “came in response to the Iranian missile attack, with the rating agency assessing that the increase in geopolitical and security risks could adversely impact the government deficit and economic performance.

“The company acknowledges Israel’s economy for its ability to withstand economic and geopolitical shocks, the strength of Israel’s external accounts relative to benchmark countries, and the high foreign exchange reserves that allow for a comfortable margin. The rating agency highlights the high-quality government debt structure and the high accessibility to capital markets in Israel and around the world, enabling government operations during routine and emergency times with high coverage ratios, as demonstrated also in the recent international issuance from March 2024.

“It is important to emphasise that investors worldwide and in Israel operate with the understanding that Israel’s government bonds are a safe and liquid asset and that the Israeli economy is diverse, innovative, and fundamentally strong. Israel will successfully address any challenges that arise. Fiscal responsibility is necessary to ensure long-term economic growth and a reduction in the debt-to-GDP ratio.”