BENGALURU: Moody’s downgraded Israel’s credit rating on Friday, citing substantial political and fiscal risks to the country from the war with the Palestinian militant group Hamas.
The impact of the conflict increases political risk and weakens Israel’s executive and legislative institutions and its fiscal strength for the foreseeable future, said Moody’s, which on Oct. 19 initiated a downgrade review.
The country’s rating was downgraded to ‘A2’, five notches above investment grade, while its credit outlook was left negative by Moody’s, meaning further downgrades are possible.
The war between Israel and Hamas, which has raged since October 7, is the latest in a seven-decade conflict between Israelis and Palestinians that has destabilized the Middle East.
“While fighting in Gaza may wane or pause, there is currently no agreement on a permanent cessation of hostilities and no agreement on a longer-term plan to fully restore and eventually strengthen Israel’s security,” Moody’s said in a statement. Friday.
The agency expects Israel’s debt burden to be “significantly higher” than projected before the conflict, and defense spending to nearly double 2022 levels by the end of this year under the baseline scenario. Israel launched an air and ground offensive on the Gaza Strip after Hamas militants killed 1,200 people and took 253 hostages.
Gaza’s health ministry said at least 27,585 Palestinians had been confirmed killed, with thousands more buried under the rubble.
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So far, one truce has been concluded, which lasted for a week at the end of November.
“While negotiations are currently underway to secure the release of hostages against a temporary ceasefire and additional humanitarian aid to Gaza, it is unclear the likelihood, timeframe and duration of such an agreement,” Moody’s said.
Israeli forces prepared for a ground attack on Hamas in the southern Gaza city of Rafah on Friday after Prime Minister Benjamin Netanyahu earlier rejected Hamas’ latest offer for a ceasefire and the return of hostages held in the Gaza Strip.
More than a million people, driven south by Israel’s bombing of Gaza, are huddled in Rafah and the surrounding areas. US President Joe Biden called Israel’s response to the Hamas attacks “over the top” and the UN said Palestinian civilians in Rafah must be protected.
