Second Downgrade – Israel’s Credit Rating Lowered Amid Rising Tensions with Iran

S&P's has downgraded Israeli economy. (Image: Palestine Chronicle)

By Palestine Chronicle Staff  

S&P Global Ratings has lowered Israel’s long-term foreign and local currency sovereign credit ratings to ‘A+’ from ‘AA-‘ and the short-term ratings to ‘A-1’ from ‘A-1+’. 

Standard & Poor’s has downgraded Israel’s long-term credit rating, citing concerns about potential military escalation with Iran, the Associated Press reported on Friday.

This marks the second major American credit rating agency to take such action and comes three months after another major US credit agency, Moody’s downgraded Israel’s rating due to the ongoing war on Gaza.

S&P’s downgrade came shortly before a drone attack at a significant Iranian air base and nuclear site near the city of Isfahan, allegedly carried out by Israel overnight on Friday.

S&P Global Ratings has lowered Israel’s long-term foreign and local currency sovereign credit ratings to ‘A+’ from ‘AA-‘ and the short-term ratings to ‘A-1’ from ‘A-1+’. 

This indicates a shift from a “very strong capacity to meet financial commitments” to “a strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances,” according to S&P.

The agency highlighted heightened geopolitical risks for Israel due to recent confrontations with Iran.

“In our view, the recent increase in confrontation with Iran heightens already elevated geopolitical risks for Israel,” S&P said. 

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The agency added that it expects ongoing conflicts in Gaza and against the Lebanese Resistance Movement Hezbollah to continue throughout 2024, impacting Israel’s budget significantly.

“The cost of the war is a major drain on Israel’s budget and all three U.S. credit ratings agencies, Moody’s, S&P, and Fitch, which also has offices in London, have issued warnings on Israel’s credit standing since” October 7, AP reported. 

Moody’s Downgrading

Last February, Israel was “cut by one notch to A2, the sixth-highest investment grade and on par with Poland and Chile,” Bloomberg said, also reporting that Moody’s “changed the outlook to negative, concluding a review that it started in October.”

In its statement, the global credit rating company concluded that the war and its aftermath will “materially raise political risk for Israel as well as weaken its executive and legislative institutions and its fiscal strength, for the foreseeable future”.

Moody’s expects “that Israel’s debt burden will be materially higher than projected before the conflict.”

The Future is Bleak – Moody’s Downgrades Israel’s Economy

In his response, far-right Prime Minister Benjamin Netanyahu tried to play down Moody’s decision to lower Israel’s credit rating and downgrade its future outlook.

“The Israeli economy is strong,” Netanyahu alleged, adding that the “rating downgrade is not connected to the economy, it is entirely due to the fact that we are in a war”.

Netanyahu said in his statement, quoted in The Times of Israel, that “The rating will rise back at the moment we win the war — and we will win the war”.

(The Palestine Chronicle)

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