Moody's warns of rating consequences of escalation

Moody's offices in Vilnius  credit: Shutterstock/Andrius Zemaitis
Moody's offices in Vilnius credit: Shutterstock/Andrius Zemaitis

"All-out military conflict with Hezbollah or Iran could have significant credit consequences for Israeli debt issuers."

Commenting on Israel’s security situation and its impact on the country’s sovereign rating, international credit rating agency Moody’s said yesterday that Sunday’s exchange of fire between Israel and Hezbollah represented an escalation, but that the economic and human costs remain limited, and in line with its base scenario.

"We continue to assume that the ongoing tensions will not escalate into an all-out military conflict between the two sides or extend to involve Iran, thus limiting the immediate credit-negative impact on the region," Moody’s said, but added, "However, an all-out military conflict with Hezbollah or Iran could have significant credit consequences for Israeli debt issuers."

In recent weeks, several international bodies have released comments and warnings about the impact of the war on Israel’s economy. Last week, US bank Citi released an analysis of Israel’s economic situation emphasizing the uncertainty arising from the fact that no end to the conflict was in sight. "Israeli USD spreads have already departed from a neutral relative value versus single-A credits and the fluid geopolitical risk environment makes it very difficult to forecast when the next point of ‘ratings repricing’ might happen," the bank wrote, adding that the rating by Moody’s looked most at risk.

Two weeks ago, Fitch downgraded Israel’s rating to A from A+, with a negative outlook, saying "The downgrade to 'A' reflects the impact of the continuation of the war in Gaza, heightened geopolitical risks and military operations on multiple fronts. Public finances have been hit and we project a budget deficit of 7.8% of GDP in 2024 and debt to remain above to 70% of GDP in the medium term. In addition, World Bank Governance Indicators are likely to deteriorate, weighing on Israel's credit profile."

Published by Globes, Israel business news - en.globes.co.il - on August 28, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Moody's offices in Vilnius  credit: Shutterstock/Andrius Zemaitis
Moody's offices in Vilnius credit: Shutterstock/Andrius Zemaitis
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