Moody’s Downgrades Israel’s Credit Rating Due to Hamas Conflict | Indian News | International Business News

Feb 10, 2024



In an important financial development, moody'sA major rating agency of America has announced a rating reduction. Israel's credit rating A1 to A2 on Friday attributed the decision to the damaging effects of the ongoing conflict with Hamas in Gaza. According to Bloomberg report, this is the first time that Israel has experienced a downgrade by Moody's.
The agency justified its decision by highlighting the increased political risk and the weakening of Israel's executive, legislative institutions and fiscal strength due to “the ongoing military conflict with Hamas, its fallout and wider consequences”. Additionally, Moody's adjusted its outlook on Israel's debt to “negative”, indicating concerns over a potential escalation in ties with Hezbollah, a powerful Lebanese militant group operating on Israel's northern border.
The conflict escalated after Hamas' unprecedented attack on October 7, resulting in a large number of casualties. About 1,160 people, mainly civilians, have lost their lives in Israel, according to an AFP tally based on official Israeli figures. In retaliation, Israel's military actions in Gaza killed at least 27,947 people, mostly women and children, according to the health ministry report in the Hamas-run territory.
In view of these events, S&P Global Ratings revised Israel's credit outlook to negative from stable, citing the potential for an escalation of the Israel–Hamas conflict. Similarly, Fitch, another major US rating agency, placed Israel on negative watch, reflecting concerns over the impacts of the conflict.
Moody's statement elaborated on the reasoning behind the downgrade, pointing to the deteriorating security environment, rising social risks and a previously anticipated decline in Israel's public debt ratio. The agency expects a significant increase in Israel's debt burden beyond initial projections due to the conflict.
The ongoing war, which has been ongoing since October 7, represents the latest chapter in the long conflict between Israelis and Palestinians, a situation that has increasingly destabilized the Middle East. Despite intermittent reductions in the intensity of fighting and temporary ceasefires, there is no durable agreement to decisively end hostilities or any long-term plan to restore and enhance security for Israel.
Moody's also forecasts a substantial increase in defense spending, almost doubling 2022 levels by the end of this year. The agency's baseline scenario reflects the financial strain imposed by the conflict, with Israel launching widespread air and land offensives in response to Hamas' deadly attacks and the taking of hostages.
As negotiations for the release of hostages and a temporary ceasefire continue, the outcome and prospects for a permanent peace agreement remain uncertain. Amid these developments, Israeli forces are preparing a ground attack on Hamas in the southern Gaza city of Rafah, an area now home to more than a million people displaced by the conflict.
International reaction has been critical, with US President Joe Biden calling Israel's retaliation “excessive” and the United Nations stressing the need to protect Palestinian civilians in Rafah.
(with inputs from agencies)



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