Israel’s credit rating downgraded on war risks

International ratings agency Moody’s has lowered Israel’s credit rating, in the country’s first-ever sovereign downgrade, the company announced on Friday.

Moody’s cut Israel’s credit score to A2, the sixth-highest investment grade, and kept its outlook as “negative,” meaning further downgrades are possible. The agency cited political and fiscal risks from Israel’s continued war with Palestinian militant group Hamas as the reason for the downgrade.

“The ongoing military conflict with Hamas, its aftermath and wider consequences materially raise political risk for Israel as well as weaken its executive and legislative institutions and its fiscal strength, for the foreseeable future,” the agency said in a statement on its website.

“While fighting in Gaza may diminish in intensity or pause, there is currently no agreement to end the hostilities durably and no agreement on a longer-term plan that would fully restore and eventually strengthen security for Israel,” Moody’s added. It noted that it “expects that Israel’s debt burden will be materially higher than projected before the conflict.”

Moody’s placed Israel’s credit rating on review back in October, less than two weeks after the country declared war on Hamas following a surprise attack by the militant group which killed around 1,200 Israelis. S&P and Fitch also placed Israel on negative ratings watch, but so far have not downgraded its credit score. S&P warned last month that it could also cut Israel’s sovereign rating if the war with Hamas expands to other fronts, such as Lebanon or Iran.

Commenting on the downgrade, Prime Minister Benjamin Netanyahu insisted it does not reflect the state of the country’s economy, but “is entirely due to the fact that we are at war.”

“The rating will go back up as soon as we win the war,” he said in a statement, as cited by Bloomberg.

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