Israel To Avoid Credit Rating Being Downgraded Despite War In Gaza

Israel's credit rating has never been downgraded amidst wars and global economic downturns
Israeli military forces during the recent conflict in Gaza
Israeli military forces during the recent conflict in GazaGetty Images

Israel will manage to avoid to a first-time downgrade of its credit ratings due to resolute finances in the country's reserves. However, this can change if the war in Gaza drags on any further.

According to a senior official at the Finance Ministry’s General Accountants’ Office, if Israel’s sovereign credit rating were to get a downgrade, it will be an extreme scenario. A more feasible outcome of the current conflict is that Israel will be put on credit watch by ratings agencies, according to the official who spoke to Bloomberg.

The war has put extra pressure on Israel's credit rating which was already under the threat of being downgraded. This was because credit assessors took a bleak view of the Israeli government's efforts to weaken the country's judiciary.

Israel's credit rating has never been downgraded in its history, meaning it has survived major economic crises, wars, and conflicts such as the one raging on right now.

Last week, the price to protect Israeli bonds from default reached its highest level in ten years. As a result, it is more expensive than credit-default swaps issued by nations with ratings three tiers worse than Israel, such as Peru.

Moody's Investors Service postponed a scheduled assessment of Israel's credit rating on 13 October, because it was still analyzing the broader financial risk posed by recent hostilities. If a confrontation continues, it might compromise the resiliency of Israeli debt issuers, the ratings agency said in a separate statement early last week.

Israeli missiles being fired in Gaza City
Israeli missiles being fired in Gaza CityFatima Shbair/AP - Getty Images

According to the official, the fighting in Gaza will result in higher government spending, lower tax revenue, and a rise in Israel's national debt. Israel has a substantial budgetary buffer, therefore it does not expect any impact on its borrowing capacity.

The conflict's economic toll would be at least 27 billion shekels ($6.8 billion), according to Bank Hapoalim in Tel Aviv With a budget deficit of about 2 per cent and a comparatively low public debt of 60 per cent of GDP, Israel's government appears to have flexibility to expand expenditure, particularly on defense.

Israel has vowed to wipe out Hamas after the Palestinian militant group killed several hundreds of Israeli citizens and took others hostage in an unprecedented attack via a border breach. The war has resulted in over 3,000 deaths in Palestine and over 1,400 on Israel's side. The conflict has been raging on for over ten days now.

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