Ratings agency S&P Global on Thursday cut Israel’s long-term ratings to A+ from AA- after the confrontation with Iran escalated last weekend and amid the already elevated geopolitical risks for Israel.
A country’s credit rating, or sovereign credit rating, is a score given to a country based on how the rating company perceives the country’s ability to pay back its debt.
This rating can give investors an idea of how risky it is to invest in the debt of a particular country (such as buying into a country’s bonds). In determining the rating, companies will assess a number of factors impacting a country’s economy as well as anticipated future events.
This is an unscheduled revision and the company said that such an update is permitted only under certain circumstances. In this case, the company explained, it was made because of the significant increase in geopolitical and security risk in Israel.
The decision comes following escalations between Israel and Iran
Recent escalations between Israel and Iran increased Israel’s geopolitical risk, according to the company, which added that it anticipated that a wider regional conflict would be avoided but that the Israel-Hamas war and the conflict with Hezbollah would continue throughout 2024.
The company emphasized that its current prediction does not include an assumption that a wider regional conflict will break out. Such a conflict would have a significant negative impact on Israel’s security and, therefore, its economic parameters, it stressed.
“We forecast that Israel’s general government deficit will widen to 8% of GDP in 2024, mostly as a result of increased defense spending,” S&P Global said in its statement.
The company also predicted that Israel will continue to have high deficits in the medium-range, hitting a peak debt of 66% of GDP in 2026.
“We currently see several possible military escalation risks, including a more substantial, direct, and sustained military confrontation with Iran,” the statement said.
Israel’s outlook will be updated to “stable” if the company sees a decrease in the risk of escalation and if it observes moderation regarding the broad security risks it currently perceives.
“S&P’s decision is a direct response to Iran’s direct missile attack on Israel,” Accountant General Yali Rothenberg said on Friday. “The company also praised the ability of the Israeli economy to withstand economic and geopolitical shocks.”
Earlier this month, Fitch kept Israel’s A+ rating but dropped the country’s outlook to “negative” after removing a negative watch. The company explained the move by saying that the risks to Israel’s credit profile have broadened and their impacts may take longer to assess.
In February, Moody’s downgraded the country’s credit rating, citing war risks.