Israel’s sovereign credit rating could be cut if the war with Palestinian Islamist group Hamas expands to other fronts, but if this does not happen it should be able to weather the war’s economic fallout if it makes needed budget changes to offset higher spending, an S&P Global Ratings director said.
S&P in October affirmed Israel’s ‘AA-’ rating but revised Israel’s outlook to “negative” from “stable”, citing risks that the Israel-Hamas war could spread more widely with a more pronounced impact on the economy and security situation in the country.
“The negative outlook on the ratings implies that we currently see at least a one-in-three chance of a downgrade over the next one to two years,” Maxim Rybnikov, director of EMEA Sovereign & Public Finance Ratings at S&P, told Reuters in e-mailed comments.
He said that if Israel’s security and geopolitical risks increase due to an escalation of the conflict — a direct confrontation with Hezbollah in Lebanon or Iran — that could lead to a downgrade.
“We could also lower the ratings if the impact of the conflict on Israel’s economic growth, fiscal position, and balance of payments proves more significant than we currently project,” Mr. Rybnikov said.
He said S&P projects Israel’s economy will grow by just 0.5% in 2024 with a cumulative budget deficit of 10.5% of GDP in 2023-2024 “but there are downside risks to the assumptions.”
The cabinet this month passed a disputed 2024 budget with amendments adding 55 billion shekels ($15 billion) of spending. It still needs Parliamentary approval.
