TEL AVIV, Israel (AP) – Israel's finance minister on Sunday condemned the decision by financial ratings agency Moody's to downgrade Israel's credit rating, calling the announcement a “political manifesto” that “contains no serious economic claims.” He said that.
Moody's on Friday downgraded Israel's debt rating, warning that the ongoing war in Gaza and the possibility of war with Hezbollah in the north could have a negative impact on Israel's economy.
This is the first time Moody's has lowered Israel's credit rating, which investors use to gauge the risk of investing in global companies and governments. Moody's downgraded Israel's credit rating from A1 to A2 and said the country's economic outlook was “negative.” Still, Moody's says the A2 rating still carries relatively low risk.
Finance Minister Bezalel Smotrich angrily rejected the decision. The announcement “reflects a lack of confidence in Israel's security and national strength and in the correctness of Israel's path toward its enemies,” he said in a statement from his official residence.
Prime Minister Benjamin Netanyahu said Saturday that Israel's economy is doing well and that “the downgrade is solely due to the fact that we are at war.” He vowed that ratings would rise again once the war was over.
Still, Israeli officials are concerned that Moody's downgrade could cause other major agencies to also downgrade Israel's outlook.
Michel Strauchinsky, an economics professor at the Hebrew University of Jerusalem and former head of research at the Bank of Israel, said the impact could affect Israel's economy by making it harder for the government to sell bonds and raise funds. He said that there is.
“If the war goes on for a long time, there will be an impact, but if it's not too long, the impact will be much smaller,” he said.
Although Israel's economy recovered after past wars with Hamas, the current war is far longer than any other war. It involves huge military spending and large-scale call-ups of reservists, straining the economy by removing reservists from the workforce.
Bank of Israel Governor Amir Yaron responded to Moody's announcement on Sunday by saying that Israel's economy is resilient and was already showing signs of recovery in November, the month after the war broke out.
But even before that, Israel, an entrepreneurial dynamo with an economic power comparable to that of Western European countries, was struggling. Concerns about Israeli governance, rising inflation and a slowdown in global tech investment last year also weighed on the economy.
The country's coffers, once bulging with high-tech investments, have also been hit by Prime Minister Benjamin Netanyahu's judicial reform plan, which seeks to weaken the power of the courts.
Moody's had expressed concern 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 judicial reforms in January.
