After Moody’s downgrades Israel's credit outlook, Netanyahu tries to prevent S&P from following suit

Israeli Prime Minister Benjamin Netanyahu recently met with S&P’s top executives in an attempt to prevent Israel’s international credit ratings, currently at AA-, to be reduced.

In mid-April the prominent financial ratings agency, Moody's, downgraded Israel's economic outlook from positive status to stable, due to recent protests over justice reforms.

The agency stressed the “deterioration of Israel’s governance,” referring to the deep divisions in Israeli society caused by the Netanyahu government’s controversial judicial overhaul plan, which opponents say is a threat to Israel’s democratic nature.

In March, Fitch's credit rating scale did not change Israel's economic outlook or its credit rating, but did warn about the planned judicial overhaul.

S&P's current credit rating for Israel is considered high when compared to Moody's rating, however the Jewish state is considered stable.

The decision by Moody’s to downgrade Israel’s economic outlook has resulted in significant interest among investors, who wonder whether S&P will follow suit and cut Israel's rating outlook. Such a move would affect the ability of the Israeli government to raise capital to finance its debts.

Moody's downgraded Israel's credit outlook from positive to stable, reportedly due to the country's controversial judicial overhaul reform controversy and the deep divisions it has caused within Israeli society.

The report emphasized that the current government's policies could risk undermining Israel's fundamental institutions, including the establishment of an independent judiciary.

However, Moody's decision to keep Israel's A1 credit rating indicates the country's strong economy and improved fiscal performance.

Netanyahu, along with Israel’s Finance Minister Bezalel Smotrich, criticized Moody's decision, stating that the analysts do not understand the strength of Israeli society and the robustness of the Israeli economy.

By contrast, opposition leader Yair Lapid criticized the government for endangering the livelihood of Israeli citizens. At the same time, former Minister of Finance Avigdor Liberman, a harsh critic of Netanyahu, claimed the government is responsible for destroying Israel's economy.

The Israeli economy has grown at a rapid rate over the past several years, averaging a 4.1% increase in the last decade up to 2022. Such growth can be attributed to the Jewish states’ global competitiveness and increasingly diversified high-tech industries.

While Israel has a strong economy, political instability could undermine the country's credit-worthiness. The nation’s ability to raise debt at relatively low-interest rates has enabled Israel to be considered a low-risk option for investors.

S&P noted Israel's strong economic foundation, citing its diversified and dynamic economy and the government's commitment to a solid fiscal position, despite the tiny nation’s geopolitical status.

"Despite the Abraham Accords and the signing of the maritime border agreement with Lebanon, an escalation of hostilities with organizations surrounding Israel is certainly a real possibility," according to the S&P rating agency.