Finance Ministry scrambles to avoid Moody's downgrade of Israeli economy

In recent days, finance officials, including Finance Minister Bezalel Smotrich, have engaged in discussions with economists from the international agency in an effort to persuade them against a rating downgrade; The decision is anticipated to be announced in February
Senior officials from the Finance Ministry, including Finance Minister Bezalel Smotrich, have been in discussions with the heads of Moody's to prevent a credit rating downgrade for Israel. This downgrade is scheduled to take place in February, according to senior figures in the economic system.
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Ynet has reported that the Finance Ministry has been actively engaging with the major international credit rating agency. Global economic bodies have predicted that Moody's intends to downgrade Israel's credit rating in the coming days. The main consequence of this downgrade would be higher interest rates on loans for the Israeli government, companies and households, in addition to the psychological impact on the stability of Israel's economy.
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סמוטריץ' בוועדת הכספים חרבות ברזל
סמוטריץ' בוועדת הכספים חרבות ברזל
Finance Minister Bezalel Smotrich
(Photo: Knesset Spokesperson)
Currently in the United States, the Israeli Accountant General Yali Rothernberg is engaging in meetings with representatives from prominent credit rating agencies and potential investors interested in Israeli bonds.
Over the past few days, high-ranking officials, including Smotrich, Rothernberg, Budget Division Director Yogev Gardos and Chief Economist Dr. Shmuel Yaakovson, have participated in virtual discussions with senior personnel from Moody's. During these discussions, they conveyed their assessments to the leaders of international rating agencies. The key messages delivered were: the scale of the conflict in Gaza has significantly diminished, resulting in a decreasing negative impact on the economy; neither Israel nor Hezbollah have any interest in initiating a war front in the northern region; the state budget, which takes into account the expenses of the conflict, is responsible and does not lead to excessive deficits, along with controlled expenditure growth.
Moody's report is expected to criticize the government's approach to the significant budget deficit and express concerns about Israel's increasing debt. These concerns arise from the insufficient measures taken by the government to reduce the deficit, as well as worries about the departure of prominent companies operating in Israel.
Lately, officials from Moody's have held meetings with key figures in the Israeli economy to evaluate the economic stability during periods of conflict. Economists have acknowledged the absence of immediate worries regarding the stability of the Israeli economy. However, they have highlighted a notable issue of insufficient government intervention in effectively addressing the deficit.
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War expenditures could affect rating
War expenditures could affect rating
War expenditures could affect rating
( Photo: REUTERS/Amir Cohen)
Economists from Moody's are expected to publish a report on the Israeli economy, expressing their concerns about several key issues. They highlight that the government has not made sufficient cuts in expenses and has allocated funds to areas that do not contribute to future economic growth. Additionally, the government has avoided implementing tax increases that could have helped reduce the deficit. There also is significant concern about the withdrawal of both Israeli and international companies operating in Israel, as well as the potential "brain drain" of Israeli entrepreneurs and wealthy individuals leaving the country for other nations.
The crisis in the Israeli hi-tech sector is also a major concern, given its role as a significant driver of economic growth. However, amid these concerns, the report will acknowledge the commendable actions of the Bank of Israel, especially their decision to reduce the benchmark interest rate, which was the first among developed countries. Economists are worried about the possibility of the conflict continuing throughout 2024, which would further strain the Israeli economy, particularly if the conflict branches out to the northern border with Hezbollah.
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