S&P Lowers Israel's Credit Rating Due to Geopolitical Risks Following Iran Attack

S&P Global has downgraded Israel’s long-term credit rating from A+ to A, citing heightened geopolitical and security risks following an intensifying conflict with Hezbollah and rising tensions with Iranian-backed forces. This unscheduled adjustment comes shortly after Moody’s also downgraded Israel’s rating, marking one of the country's lowest credit scores in history.

The agency explained that Israel's economic and financial stability is at risk due to the possibility of more severe security threats, especially if Hezbollah retaliates with rocket attacks or other military actions. S&P now predicts zero real GDP growth in 2024, a sharp decline from previous forecasts of 0.5%, with a modest recovery of 2.2% in 2025. The projected deficit for 2024 is expected to rise to 9%, with a slight decrease to 6% the following year.

S&P's outlook assumes ongoing military activity in Gaza and increased conflict with Hezbollah by 2025. While it predicts that Hezbollah and other Iranian proxies may carry out retaliatory strikes, the agency did not foresee sustained damage to Israel's critical infrastructure or wider regional war directly involving Iran. However, should these assumptions prove inaccurate and the conflict with Iran escalate, Israel could face further downgrades.

Despite these concerns, S&P emphasized Israel’s economic resilience, praising its diversified economy, high per capita income, and adaptability in times of crisis. Israel has historically shown robust recovery following previous conflicts, and the agency lauded the government’s commitment to fiscal consolidation, especially through efforts to limit the deficit and promote investment.

The credit rating downgrade raises concerns about Israel's cost of borrowing, as a lower rating typically increases interest rates on debt. In 2022, Israel spent more on interest payments than it did on its primary and secondary school systems combined. A continued decline in investor confidence could further limit Israel’s access to capital markets, hindering economic growth.

Israel’s Accountant-General, Yali Rothenberg, responded to the downgrade by reaffirming the government’s resolve to manage the economic fallout of the ongoing war. Rothenberg stressed the importance of approving a 2025 budget that would cap the deficit at 4% of GDP, bolster fiscal reserves, and stimulate economic growth while addressing the nation’s social and security needs.

In these challenging times, Israel remains committed to safeguarding its economic future while standing firm against the threats it faces. Share this story and subscribe to our newsletter to stay updated on Israel’s efforts to protect its economy and people.