Moody’s downgraded Israel’s credit rating on Friday, attributing it to significant political and fiscal risks arising from its conflict with the Palestinian militant group Hamas. The agency commenced the review for a downgrade on October 19, highlighting concerns about the impact of the ongoing war on Israel’s political stability, institutional strength, and fiscal resilience in the near future.
Israel’s credit rating was reduced to “A2,” remaining five notches above investment grade, while maintaining a negative credit outlook, indicating the potential for further downgrades.
The protracted conflict between Israel and Hamas, spanning over seven decades, has heightened political uncertainty and regional instability, according to Moody’s assessment.
Moody’s emphasized the absence of a durable ceasefire agreement or a comprehensive security restoration plan, projecting a significant increase in Israel’s debt burden and defense expenditures. The agency anticipates defense spending to nearly double by the year’s end compared to 2022 levels, underscoring the strain on Israel’s fiscal health.
The conflict has seen Israel conducting airstrikes and ground offensives in the Gaza Strip in response to Hamas attacks, resulting in significant casualties and widespread destruction. While some temporary ceasefires have been brokered, uncertainties persist regarding the prospects and durability of lasting peace agreements.
Israeli forces prepared for a potential ground assault on Hamas in the Gaza city of Rafah amid escalating tensions. Prime Minister Benjamin Netanyahu rejected Hamas’ ceasefire offer, signaling continued hostilities. The humanitarian situation in Gaza has deteriorated, with a large population displaced and in need of protection and aid.
The United States and the United Nations have called for the protection of Palestinian civilians and urged efforts to achieve a sustainable ceasefire. The conflict’s repercussions on Israel’s economic stability and regional security remain significant concerns for international observers.