In light of the escalating conflict with Hamas, Moody’s Investors Service has reportedly reviewed the prospects of downgrading Israel’s debt rating.
According to a statement released by the ratings agency, Moody’s has put Israel’s A1 long-term foreign currency and local currency issuer ratings under review. The outlook for the country as a whole was stable in the past.
“Israel’s credit profile has proven resilient to attacks and military conflict in the past. However, the severity of the current military conflict raises the possibility of longer lasting and material credit impact,” analysts Kathrin Muehlbronner and Dietmar Hornung wrote.
“The military conflict increases the already relatively high threat to Israel from geopolitical risks,” the assessment noted further.
During the review period, Moody’s will assess whether the conflict can escalate over a longer period of time or be resolved.
“While a short-lived conflict could still have an impact on creditworthiness, the longer and more serious the military conflict, the greater its impact on policy effectiveness, public finances and the economy,” the agency remarked.
The review will also reportedly assess whether the conflict will interrupt or reverse previously expected positive trends in debt metrics.
Earlier, Fitch Ratings put Israel’s credit rating at negative for a prolonged period due to fears of escalation and confrontations with multiple players.
Meanwhile, Nir Barkat, Israel’s Minister of Economy and Industry, emphasized that his country will ‘boom’ after the Gaza war is over.
“Actually, amid the ongoing war, we are open for business and this is a good time to foster and build government-to-government relationships, enabling more companies to invest here. The global investors are waiting for the war to end, which is fine. But they should be ready as there’s going to be a boom in our economy, a major boost, when all this is over,” Mr Nir Barkat told the news agency ANI.
“Israel has a huge advantage. We’re very entrepreneurial, we know how to do business globally, and we’re going to win this war. So, smart investors and smart people are looking at opportunities,” he further added.
As the armed conflict has already killed thousands in the region, apart from threatening to impede Israeli efforts to attract investments, Nir Barkat said that his country’s trademark “entrepreneurial spirit, global business acumen, and unyielding resolve” would ultimately drive its economy to new heights.
“Israel has a huge advantage. We’re very entrepreneurial, we know how to do business globally, and we’re going to win this war. So, smart investors and smart people are looking at opportunities,” Nir Barkat said, while reiterating that despite his country waging wars throughout its history, the economy has remained strong and resilient.
Meanwhile, the Bank of Israel and the Ministry of Finance have started formulating scenarios and forecasts related to the domestic GDP loss, the extent of the deficit and debt, as well as the continued planning of the economic policy following the war.
The Bank of Israel’s baseline scenario takes into account an armed conflict that will last between a month and six months. The apex bank expects the economic fallout of this crisis to be similar to the 2006 Lebanon War.
While the Bank of Israel believes that the war will have far-reaching consequences, including a permanent increase in the defence budget, it feels that the significant damage to the economy will be concentrated in the last quarter of 2023, in the form of negative GDP growth.