After the American rating agency Moody’s lowered Israel’s credit rating, Finance Minister Bezalel Smotrich assured that the economy was “strong.”
“The Israeli economy is being forced to bear the burden of the longest and most expensive war in the country’s history,” Smotrich said. “The Israeli economy is a strong economy which, even today, attracts investments. »
Late Friday, Moody’s lowered Israel’s credit rating for the second time in 2024, citing the intensity of the fighting between the Jewish state and Hezbollah, the Lebanese terrorist group supported by Iran. and the fear that the economy will be more permanently weakened by the military conflict than had previously been anticipated.
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The financial rating agency lowered the country’s rating from A2 to Baa1.
Smotrich sought to reassure investors by saying the government will adopt a “responsible budget [pour 2025]with the necessary restraint measures.
“This is a war for our very existence that we must pursue until victory, so that we can live many years of peace, security and economic growth,” Smotrich added. “Once we win the war, even those who lowered our rating will bring it back to the real level of the Israeli economy. »
READ: Imminent risk of financial crisis in Israel – economists
However, for months, leading economists and former members of the authorities, not forgetting the governor of the Central Bank, Amir Yaron, have been saying that the government is not taking enough measures to mitigate the – imminent – risk of a crisis likely to push Israel’s battered economy into recession and endanger its security.
Business leaders, investors and market participants are calling on political authorities to responsibly cut spending, implement tax increases and take reforms to hasten the recovery and stimulate economic growth once the fighting over.
According to analysts, this drop in confidence in the government’s ability to contain the debt could have a negative impact on investments, result in high interest rates in the long term and increase the cost of credit.
Faced with the deterioration of its credit ratings and a growing deficit, complicated by the explosion of military and civilian spending due to a war against Hamas, the first anniversary of which will soon be celebrated, the government has all the difficulties of world to keep a balanced budget and preserve its credibility without cutting corners on the financing of military operations.
According to information from the Israeli financial daily Calcalistinstitutional investors have withdrawn 151 billion shekels from Israel since the start of the war against the Hamas terrorist organization on October 7.
Still according to this source, it is the prolonged war against Hamas and fears of an increase in fighting against Hezbollah in the north, plus the large deficit and the slowdown in growth, which have led large insurance companies and investment funds, responsible for managing the long-term savings of Israelis – including pension and provident funds – to outflow capital to assets located abroad.
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