Ratings agency S&P Global on Thursday cut Israel’s long-term ratings to A-plus from AA-minus after the confrontation with Iran heightened last weekend and amidst the already elevated geopolitical risks for Israel.
“We forecast that Israel’s general government deficit will widen to 8% of GDP in 2024, mostly as a result of increased defense spending,” S&P Global said in its statement.
What does the negative outlook reflect?
The negative outlook reflects the risk that the Israel-Hamas war and the confrontation with Hezbollah could escalate or affect Israel’s economy more than the agency currently expects.
“We currently see several possible military escalation risks, including a more substantial, direct, and sustained military confrontation with Iran,” the statement said.
On Saturday, Iran’s Islamic Revolutionary Guards Corps said it launched dozens of drones and missiles at Israel, an attack which could trigger a major escalation between the regional archenemies, with the US pledging to back Israel.
Earlier this month, Fitch removed Israel from “rating watch negative” and kept its A-plus rating, but cited Israel’s war against Hamas in Gaza as a risk.
In February, Moody’s downgraded the country’s credit rating on war risks. Israeli Finance Minister Bezalel Smotrich said that decision was not based on sound economic reasoning and was tantamount to a pessimistic “manifesto”.
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