International credit rating agency Moody's, one of the two largest and most respected companies in the world, announced late Friday it decided to downgrade Israel's credit rating to A2 (from A1).
The company also added a "negative outlook" to the downgrade in rating, which could lead to another cut in rating if Israel's security, geo-political, and economic situation deteriorates further due to the war in Gaza or as a result of launching another front on the northern border.
In April 2023, Moody's changed Israel's rating outlook from "positive" to "stable" due to concerns about the judicial overhaul and the protests that followed it.
The downgrade didn’t surprise Prime Minister Benjamin Netanyahu and senior officials from the Finance Ministry, who tried to prevent it in recent days by trying to appeal to the rating company’s economic analysts, explaining that Israel's economy is stable and there has never been a situation where the country didn’t repay its debts on time or did not emerge from an economic crisis quickly - such as the recent immediate recovery from the economic hardships during the COVID-19 pandemic.
The announcement was reluctantly received in the Prime Minister's Office and Finance Ministry late Friday, and there are now concerns that the other two leading rating agencies, S&P Global Ratings and Fitch Group, will also act to alter Israel's credit rating soon.
The downgrade - the first ever since Israel’s credit rating began being evaluated in 1998 - is expected to increase the interest rates for loans that the country is forced to take due to the ongoing war in Gaza and the ongoing tensions on the northern border.
The move will also raise interest rates for Israeli companies and households. The downgrade could temporarily lead to a decline in stock prices on the Tel Aviv Stock Exchange and weaken the shekel against foreign currencies in the near future.