It is the first time Moody’s has lowered Israel’s credit rating, which is used by investors to measure the riskiness of investing in a global entity or government. Moody’s downgraded Israel from A1 to A2 and said the outlook for the country’s economy was “negative.” The A2 rating nonetheless continues to carry relatively low risk, according to Moody's.
Finance Minister Bezalel Smotrich angrily dismissed the decision. The announcement “reflects a lack of confidence in Israel’s security and national 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 on Saturday that Israel’s economy was strong and “the downgrade is entirely due to the fact that we are at war.” He vowed that once the war ended, the rating would go up once again.
Still, Israeli officials fear that the Moody’s downgrade could lead other major agencies also to downgrade Israel’s outlook.
That could impact Israel's economy because it will make it harder for the government to raise money by selling bonds, said Michel Strawczynski, a professor of economics at the Hebrew University in Jerusalem and the former director of the research department at the Bank of Israel.
“If the war is long, it will have an impact, but if it’s not too long, the impact will be much less,” he said.
Israel's economy bounced back after previous wars with Hamas, but the current war is much longer than any of those. It has included huge military expenditures as well as massive callups of reservists, straining the economy by removing them from the work force.
Bank of Israel Gov. Amir Yaron said on Sunday in response to Moody's announcement that the Israeli economy was resilient and already showing signs of recovery in November, the month after the war broke out.
Even before then, though, Israel – an entrepreneurial dynamo with an economy rivaling countries in Western Europe — was struggling. Concerns about Israel’s governance, rising inflation and a worldwide slowdown in tech investments last year also weighed on the economy.
Its coffers, once swollen by tech investments, were also hit by Prime Minister Benjamin Netanyahu's proposed judicial overhaul, which attempted to dilute the powers of the country's courts.
Moody's had raised concerns that the plan could weaken Israel's investment climate. The report released on Friday praised the "strong checks and balances" that led to the shelving of the judicial overhaul in January.