Bank of Israel Governor Amir Yaron said on Sunday that the country’s economy was strong and would recover from the impact of the war, but called on the government to address issues raised by Moody’s after the financial rating agency downgraded Israel’s sovereign rating, reports Reuters. quoted by news.ro
Attack in IsraelPhoto: Oded Balilty / AP / Profimedia
In order to increase the confidence of the markets and rating companies in Israel, it is essential that “the government and the Knesset act to address the economic issues raised in the report. We have known how to recover from difficult times in the past and quickly return to prosperity, and the Israeli economy has the power to ensure that this will be the case this time as well,” said Yaron.
Since the October 7 massacre of civilians in Israel by the Palestinian Islamist group Hamas, the central bank chief has called on the government to maintain fiscal discipline and reduce spending on items unrelated to Israel’s retaliation against the group in Gaza.
In Israel’s first downgrade, Moody’s on Friday cut the country’s rating from A1 to A2, five notches above investment grade, and kept the credit outlook at negative, meaning a further downgrade is possible.
Moody’s cited material political and fiscal risks caused by the war, adding that “Israel’s budget deficit will be significantly larger than expected before the conflict.”
The cut, if extended or if it leads to other such moves, would raise borrowing costs for Israel and could lead to budget cuts and tax hikes to keep the budget deficit from spiraling out of control.
Moody’s noted that Israel’s debt-to-GDP ratio looks likely to reach 67% by 2025, up from 62.1% in 2023.
However, this ratio has been much higher in the past, during times of economic crisis in Israel, but “there has never been any delay in repaying government debt,” Yaron said.
Last month, S&P Ratings told Reuters it could downgrade Israel’s credit rating if the war with Hamas expands to other fronts.
Lawmakers last week gave initial approval to a revised state budget for 2024 that added tens of billions of shekels to finance the war and compensate those affected, as well as an increase in the budget deficit this year to 6, 6% of GDP, from 2.25%.
Prime Minister Benjamin Netanyahu reacted to Moody’s measure on Friday, saying that “the rating will go up again as soon as we win the war – and we will.”