In the shadow of the step up against Iran: the S&P agency lowered Israel's credit rating

The credit rating agency S&P announced tonight (Friday) the lowering of Israel's credit rating from A+ to AA-, with a negative credit rating forecast. According to the rating agency, by the end of 2024 the deficit will swell to 8% of GDP, as a result of the expansion of the defense budget. "The change was made following the intensifying conflict with Iran, which is added to Israel's existing geopolitical risk."

Lieberman on the attack: "The economy is on a crash course because of the government's failures"
Zelicha against Smotrich: "What did Sefer Tehilim present to the rating agency?"

In February, as I recall, Moody's announced a downgrade in Israel's credit rating , in the shadow of the ongoing war in Gaza. Until the decision, Israel held an A1 credit rating with Moody's, with a "stable" outlook. The rating drops to level A2 and a "negative" rating outlook. "In the company's opinion, the increase in security risks is also related to the increase in social risks in Israel, which in turn will weaken the state's institutions with an emphasis on the executive and legislative authorities which, in the foreseeable future, will devote their time to efforts to restore security," it said.

"The assessment of society also takes into account the strong record and the latest indications of the strength of civil society and the judicial system, which have proven that they provide a strong and effective set of checks and balances. Thus, the Supreme Court canceled the government's attempt to limit the supervision of the judicial system, thus clarifying its strength and the independence of the judicial system."

What does the decision mean?

After Moody's decision in February, Omer Moab , professor of economics and host of the "Doing the math" podcast, explained what the downgrade of Israel's rating means. "The credit rating agencies estimate the ability of various entities in the world to meet their obligations towards loans and repay debts in full and on time. The rating agencies take into account many economic considerations in preparation for the decision and a continuous reflection of the state of the existing economy," he said.

"Besides these, they bring to light and try to predict the capabilities of countries, through non-economic events (directly): wars and the security situation, the weather and climate in the country, protests, the status of the government and broad political events. Credit rating determines the country's ability to receive loans and the interest you will pay for it."

He added: "The credit rating is supposed to reflect reality and not create reality, but by virtue of the fact that it reflects reality it also provides information, this information economic research shows that it has an effect. It reduces investments and it negatively affects the ability of the state, the government and the private companies in the economy to raise Capital. This means that there are other consequences beyond the reflection of the situation. This is contrary to all kinds of statements by journalists and economists who say that the credit rating is not important."