Moody’s leaves Israel’s rating at A2 with negative outlook

Big three credit rating agency Moody’s left Israel’s rating at A2 with a negative outlet in a rating released Friday.

The reaffirmation of the rating reflects the company’s stance that A2 appropriately reflects the increased geopolitical risks Israel faces, the company said.

A country’s credit rating, or a sovereign credit rating, is a score based on how the rating company perceives the country’s ability to pay back debt. This rating can give investors an idea of how risky it is to invest in the debt of a particular country (such as buying the bonds of the country). In determining the rating, companies will assess a number of factors impacting a country’s economy and anticipated future events.

The company reaffirmed a rating initially set in February when the company dropped Israel’s score from A1 to A2.

The company’s base case assumes that the Israel-Hamas war will continue, as will conflicts between Israel and Iran and its proxies, especially Hezbollah.

The negative outlook reflects the company’s opinion that there is a significant risk of escalation and the development of a direct military conflict with Iran or Hezbollah. These could lead to a swift downgrade of Israel’s rating, the agency said.

The company also said that the negative outlook reflects the fact that the impact of tensions between Israel and third parties may be revealed over time.

Accountant General Yali Rothenberg called the decision by Moodys unsurprising given Israel’s continued war and its impact on the economy.

“While emphasizing Israel’s security challenges and their impact on the economy, [Moody’s] noted favorably that Israel showed quick economic recovery in the first quarter of 2024,” he said.

Israel must act with fiscal responsibility in order to ensure long term growth and reduce the debt-to-GDP ratio, he added.