Moody's Ratings said Israel's election results are unlikely to have an immediate impact on the country's sovereign credit rating, currently at Baa1 with a stable outlook, but warned that further moves undermining judicial independence could weaken its assessment of Israel's institutional strength. In a review of the election results reported Sunday, the agency said it does not anticipate significant changes in economic or fiscal policy regardless of the next government's composition. It also expects coalition negotiations to take weeks, possibly months, before a new government is formed.
According to Moody's, the primary risk arising from the election is a further erosion of institutional strength. If the next coalition continues advancing measures that undermine judicial independence and weaken checks on executive power, the agency could lower its assessment of Israel's institutional strength, a key factor in determining sovereign creditworthiness.
Prime Minister Benjamin Netanyahu and Gadi Eisenkot
(Photo: AP Photo/Ariel Schalit, Chris McGrath/Getty Images)
On the positive side, Moody's said policy changes regarding Gaza, the West Bank, Lebanon and Iran could help restore Israel's international relations and support its credit profile. The agency's economists expect another government led by Prime Minister Benjamin Netanyahu to maintain the current approach, potentially further straining foreign relations. An alternative government led by the opposition, they suggested, could pursue a different course.
Moody's also raised its economic growth forecasts for Israel, increasing its 2026 projection from 3.7% to 5% and its 2027 estimate from 5% to 6%. However, the agency emphasized that most of the upward revision reflects a statistical change introduced by Israel's Central Bureau of Statistics, which now includes overseas production by Israeli companies in its calculations. Excluding that activity, the Bank of Israel forecasts growth of 3.4% in 2026 and 5.1% in 2027, broadly in line with Moody's previous estimates.
The agency also improved its fiscal projections. Israel's general government deficit is now expected to reach 5% of gross domestic product in 2026, down from the 5.9% projected at the beginning of the year. Government debt is forecast at 68.5% of GDP, compared with the previous estimate of 70.1%. Looking ahead, Moody's expects the deficit to narrow to 4.8% of GDP in 2027 and 4.3% in 2028.
The review stands in contrast to an assessment published over the weekend by rival rating agency Fitch. While Fitch identified Israel's political deadlock and the prospect of operating under a temporary, rollover budget as the main economic risks, warning that government debt would continue to rise, Moody's devoted most of its analysis to institutional stability and international relations. Prolonged political paralysis received only a brief mention in Moody's assessment.
The distinction underscores the central message of Moody's review: Israel's credit standing will not be determined by deficit figures alone. The identity of the next government, its approach to judicial independence and its policies toward the international community could prove decisive in shaping the country's future credit outlook.