Credit rating agency Moody’s on Saturday raised Israel’s credit outlook from negative to stable, while leaving the country’s rating unchanged at Baa1, the lowest level Israel has ever received. The improved outlook signals a reduced risk of a further downgrade in the near term, but it does not indicate that an upgrade is expected anytime soon.
According to Moody’s economists, Israel’s geopolitical risk has declined from the peak reached during the war. So far, there has been no broad escalation with Iran, the fighting with Hezbollah has ended, and the cease-fires in Gaza and Lebanon have been holding since late 2024.
In a report published alongside the decision, Moody’s said Israel’s economy has demonstrated resilience despite fighting on multiple fronts. Among the strengths cited were a strong high-tech sector, a large and diversified economy, high income levels, a justified but manageable fiscal position, and strong institutions with credible economic policy.
The agency noted that public debt has risen due to war-related spending, but emphasized that Israel’s foreign currency reserves, totaling more than $220 billion, serve as a significant financial buffer.
Moody’s decision follows a similar move by Standard & Poor’s, the world’s largest credit rating agency, which announced in November that it was maintaining Israel’s credit rating at A in its semiannual report. At the same time, S&P raised its outlook from negative to stable, signaling increased optimism and a realistic possibility of a future rating upgrade.
The war’s toll on Israel’s credit rating
Israel’s credit rating had never been downgraded until early 2024, when the rating agencies began lowering it one after another following the deterioration of the country’s economic position due to the war imposed on it. The conflict began in Gaza and along the northern border, and later expanded to confrontations with the Houthis and Iran.
All three leading global rating agencies, Standard & Poor’s, Moody’s and Fitch, said in reports accompanying their downgrade decisions that the moves were driven by the economic impact of the war, rising government debt relative to gross domestic product, a sharp increase in the budget deficit and a slowdown in growth. They also cited geopolitical and political risks in the Middle East in general, and in Israel in particular.
Standard & Poor’s was the first to downgrade Israel’s rating, cutting it on April 15, 2024, to AA-, and again on October 2 to A. Moody’s lowered Israel’s rating on February 9 last year from A1 to A2, and then cut it again to Baa1, its lowest-ever rating for Israel, on September 27, 2024. That rating is comparable to countries such as Peru, Kazakhstan and Thailand. On August 13, 2024, Fitch downgraded Israel from A+ to A.
All three agencies initially assigned Israel a negative outlook, allowing for the possibility of further immediate downgrades if deemed necessary. As noted, two of them have since revised that outlook to stable.
What is a credit rating?
A credit rating is an assessment assigned to countries, companies and individuals that reflects their ability to repay loans in the future. Credit rating agencies, like banks assessing private borrowers, examine financial history, assets, economic indicators and the scope of existing liabilities.
Who does it matter to?
First and foremost, credit ratings matter to those who lend money to countries or invest in them. The agencies assess the level of risk involved and the borrower’s ability to meet its obligations.
What does this mean for investors?
The higher a country’s credit rating, the lower the yield it needs to offer investors, as a higher rating indicates lower risk. Those lending to the United States or Germany, for example, accept far lower interest rates than those lending to Peru. Countries in severe distress, such as Syria or Sudan, often struggle to find lenders at all.
Who sets Israel’s credit rating?
Israel’s rating is determined primarily by three international agencies widely trusted in global financial markets: Standard & Poor’s, Moody’s and Fitch.