Israel Reacts to Moody’s Credit Downgrade: A Deep Dive into the Impact and Controversies
Watan-The news agency “Bloomberg” revealed that Israel is experiencing anger due to its first credit rating downgrade in nearly 50 years by Moody’s credit rating agency.
The agency quoted Israeli officials as saying that the concern lies in the possibility of affecting the relationship between Israel and investors, as it embarks on near-record borrowing to finance the war on the Gaza Strip.
Moody’s announced that it had downgraded the foreign currency issuer ratings and local currency ratings of the Israeli government to A2 from A1. It also downgraded Israel’s foreign currency and local currency unsecured ratings to A2 from A1, amid negative expectations.
The decision to downgrade Israel comes against the backdrop of a war it has been waging on the Gaza Strip since October 7 last year, leading it to appear before the International Court of Justice on charges of “genocide,” in addition to tensions in the north with the Lebanese Hezbollah party and attacks in the Red Sea against Israeli, American, and British ships.
What does the downgrade mean?
A downgrade means that investors may become more cautious about Israeli debt instruments and may demand higher interest rates to address the risks outlined by the agency toward the Israeli economy.
Moody’s announcement of Israel’s downgrade prompted unusually strong rebukes from officials towards the agency, including Prime Minister Benjamin Netanyahu, who questioned the intent behind the decision.
While Israel remains within the good investment grade area, risks remain high as it risks further downgrades by agencies such as Fitch and Standard & Poor’s.
What about Fitch’s rating for Israel?
Fitch now rates Israel one notch higher than the level it was on with Moody’s.
Standard & Poor’s credit rating agency places Israel‘s ratings higher than Fitch’s, amid expectations of rating downgrades.
Israel’s dispute with Moody’s focuses on what officials believe is a mistaken reading of an economy that has proven its resilience in the face of wars and still enjoys large foreign exchange buffers.
Israel’s foreign exchange reserves amount to about $200 billion, representing about 37% of gross domestic product, which is a high value, but Tel Aviv does not possess any other reserves such as gold and stocks.
