Tel Aviv, Israel – Israel’s finance minister on Sunday criticized financial rating agency Moody’s decision to downgrade Israel’s credit rating, saying the announcement was a “political manifesto” that “did not include serious economic claims.”
Moody’s downgraded Israel’s debt rating on Friday, warning that the ongoing war in Gaza and a possible war in the north with Hezbollah could negatively affect Israel’s economy.
It is the first time that Moody’s has downgraded Israel’s credit rating, which investors use to gauge the risk of investing in a global entity or government. Moody’s downgraded Israel’s rating to A2 from A1 and said the outlook for the country’s economy was “negative.” However, the A2 rating still carries relatively low risk, according to Moody’s.
Finance Minister Bezalel Smotrich angrily rejected the decision. The announcement “reflects a lack of confidence in Israel’s national security and strength, and also a lack of confidence in the righteousness of Israel’s path against its enemies,” he said in a statement from his office.
Prime Minister Benjamin Netanyahu said Saturday that Israel’s economy was strong and that “the decline is entirely due to the fact that we are at war.” He promised that once the war was over, the rating would go back up.
Still, Israeli officials fear that Moody’s downgrade could lead other major agencies to downgrade Israel’s prospects as well.
That could impact Israel’s economy because it will make it harder for the government to raise money by selling bonds, said Michel Strawczynski, an economics professor at the Hebrew University of Jerusalem and former head of the Bank of Israel’s research department.
“If the war is long, it will have an impact, but if it is not too long, the impact will be much less,” he said.
Israel’s economy recovered after previous wars with Hamas, but the current war is much longer than any of them. It has included huge military expenditures, as well as mass call-ups of reservists, which has hit the economy by removing them from the workforce.
Bank of Israel Governor Amir Yaron said Sunday in response to Moody’s announcement that the Israeli economy was resilient and already showing signs of recovery in November, a month after the war broke out.
Yet even before that, Israel – a business dynamo with an economy that rivals Western European countries – was struggling. Concerns about Israel’s governance, rising inflation and a global slowdown in technology investments last year also weighed on the economy.
Their coffers, once swollen by technology investments, have also been hit by Netanyahu’s proposed judicial reform, which sought to dilute the powers of the country’s courts.
Moody’s had expressed concern that the plan could weaken Israel’s investment climate. The report released Friday praised the “strong checks and balances” that led to shelving judicial reform in January.
ML–Israel-Economics-Moodys, 1st Ld-Writethru
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