The internal repercussions that caused the Israeli budget deficit to rise to more than 8 percent, the huge military spending, which according to Israeli estimates exceeded $100 billion, and the crises created by the war in several economic sectors such as technology and construction, prompted Standard & Poor’s once again to reduce Israel’s credit rating. The long-term rating went from A+ to A, and the agency attributed this decision to the increasing security risks in light of the most recent escalation in the conflict with Hezbollah.
The agency also changed its outlook for Israel’s economy to negative, noting that it also reflects the risk of a more direct war with Iran.
Consecutive discounts
This is not the first time it has been reduced Standard & Poor’s Agencyclassification IsraelLast April, the US agency lowered Israel’s long-term credit rating from “AA-” to “A+”.
The continuation of the Gaza war and the escalation with Hezbollah on the northern front also prompted Fitch to reduce Israel’s credit rating by one notch, from “A+” to “A”.
Last February, Moody’s lowered Israel’s credit rating to “A2,” but the intensification of the conflict with Hezbollah prompted the agency to lower Israel’s rating again, but this time by two notches from A2 to Baa1. It also maintained its negative outlook, which is a rating that means weak creditworthiness. High risks surrounding the economy and public finances.
Repercussions of downgrading
The Israeli economy has been subjected to 5 downgrades in its credit rating in less than a year, which are downgrades that constitute a serious economic warning. According to the Israeli newspaper Calcalist, the downgrade of Israel’s rating carries with it deeper repercussions than just numbers, as it directly affects investors’ confidence in the Israeli economy, and also affects… Israel’s ability to finance itself at reasonable costs in the future.
The Israeli newspaper’s report indicated that the evaluation issued by rating agencies is not only a reflection of reality, but also works to “shape” this reality, as it greatly affects how potential investors view the Israeli economy.
The expert and economic analyst, Dr. Thabet Abu Al-Rous, said in an interview with “Iqtisad Sky News Arabia” website, that the new classification of Israel is considered a point of risk for investors who want to invest in Israel, stressing that lowering Israel’s classification poses a danger to its economy.
He added: “Despite Israeli Prime Minister Benjamin Netanyahu saying that Moody’s rating cannot affect Israel’s economy as a ‘strategic dimension’, the truth is the opposite. The new rating has clear implications, if Israel wants to borrow from foreign countries, or From investors, the cost of borrowing will be high.”
“Israel’s economy is in danger”
The war that has been ongoing for more than a year in the Gaza Strip and the escalation with Hezbollah has had serious repercussions on most economic sectors in Israel, as the technology sector suffers from a sharp decline in foreign and local investments by 30 percent, and the construction and agricultural sectors are experiencing major crises due to the significant labor shortage after Suspending the work permits of more than 200,000 Palestinians.
International tourism losses in Israel during the year of the war on Gaza amounted to about $5.25 billion, according to what the Jerusalem Post reported.
In addition, Israeli debt has witnessed a significant increase, as the Israeli debt ratio of 70 percent of the gross domestic product is equivalent to 370 billion dollars, a number that exceeds Israel’s foreign exchange reserves, which amount to approximately 200 billion dollars, according to data from the “Bank of Israel.”
These indicators prompted the Israeli Ministry of Finance to reduce growth expectations to 1.1 percent, down from 1.9 percent. Growth expectations for next year were also reduced to 4.4 percent from 4.6 percent. Moody’s also lowered its forecast for Israel’s economic growth in 2025 from 4% to only 1.5%, and its long-term growth forecast was lowered from 4% to 3% annually.
According to what Israeli economist Dan Ben David, who heads the Shoresh Foundation for Social and Economic Research, told the Washington Post, Israel’s economy is in serious danger unless the government wakes up. He added: “Right now, they are completely disconnected from anything that is not related to the war… and there is no end in sight.”
Referring to the war as “the mother of all wars,” Ben David expressed frustration with officials in the Finance Ministry, currently headed by Minister Bezalel Smotrich, over what they see as the government’s preference to appease its supporters at the expense of strengthening the economy.
High expenses
The cost of displacement of about 100,000 Israeli residents due to the war amounted to about $2.34 billion, including $1.5 billion allocated to hotel expenses, as the government reserved about 13.5 million nights of accommodation, according to the Jerusalem Post. The government of Israel also had to pay $864 million in residency grants. All these costs contributed to the budget deficit rising to about 8.3 percent.
