After the international credit rating company Fitch Ratings announced last night (Monday) the lowering of Israel’s credit rating from A+ to A, with a negative rating forecast – meaning that the expectation is for a downward trend, Finance Minister Bezalel Smotrich said that “we at war, and that’s natural,” and that “Israel’s economy is strong and we navigate it responsibly.”
The international credit company’s announcement last night joined the two other international credit rating companies, Moody’s and S&P, which lowered Israel’s rating a few months ago.
The company stated that the credit rating was downgraded due to “the continuation and expansion of the war, the increase in geopolitical risks and the instability in the region”. The company said that they estimate that the war will last until the end of 2024 and possibly beyond. Because of this, society expects continued high expenditures on immediate military needs and damage to the entire economy, especially in the combat zones.
The company predicts that the government’s budget deficit will reach the level of 7.8% of GDP in 2024, which is in contrast to the government’s target of 6.6%. The reason for this is the large military expenditures and the continued financing of the evacuation of the residents of the northern border. In addition, against the background of the reports of huge arms deals being signed with Israeli companies, it was noted that the defense revenues in the first half of 2024 were a pleasant surprise, but that Israel’s defense expenditures are expected to increase by 1.5% permanently.
THE MEANING OF THE CREDIT RATING
The credit rating indicates the ability of countries, companies and people to repay loans they wish to take. The rating is determined based on the strength and financial stability of each individual or company. Among other things, components such as loan repayment history, the state of the borrower’s assets, whether there are apartments, offices or assets that are worth money, and the equity compared to the existing liabilities are weighted.
All the data together make up a situational picture that clarifies whether the state, the company or the individual can meet the repayment of future loans. When the credit rating goes down, the interest on loans goes up, to reflect the theoretical risk of taking the loan – in this case, by the State of Israel.
Minister of Finance: “We are at war, it is natural. After the victory, we will put the economy on a growth path”
Finance Minister Bezalel Smotrich said in response to the downgrade: “The State of Israel is in the midst of an existential war, the longest and most expensive in its history. A war that is being waged on several fronts at the same time and has been going on for almost a year. The downgrade following the war and the geopolitical risks it creates is natural. Israel’s economy is strong and we navigate it correctly and responsibly. The economic indicators point to the strength of the economy and the high confidence we have in the markets.
Smotrich added: “Today we will win the war on all fronts, restore security and raise the economy from war to a path of growth. We will pass a responsible budget that will continue to support all the needs of the war on the front and in the rear until victory, while maintaining fiscal frameworks and promoting growth engines. Very quickly too The credit rating will rise again.”
The head of the opposition: a balanced and responsible budget must be presented that meets the needs of the economy instead of the needs of the politicians”
The leader of the opposition and former finance minister Yair Lapid said that “downgrading Israel’s credit rating looks like something technical, it is not. It will cost us. The Israeli middle class will feel it in their pockets. The unbearable prices will rise even more. The state will pay higher interest rates. The rating companies, they tell us: the Israeli economy is not managed. The government does not know what it is doing. The war is too long and expensive, the priorities are crooked, the promiscuity is rampant.
Lapid continued: “In order to stop the drift, at least 12 unnecessary government ministries should be closed immediately, the coalition funds should be canceled, growth engines should be promoted instead of support for people who do not work, a balanced and responsible budget should be presented that meets the needs of the economy instead of the needs of the politicians.
The Accountant General: “The State of Israel is in demand in the international capital markets despite the war, at the same time a responsible budget is needed.”
The Accountant General, Yehli Rotenberg, said: “The continuation of the war and the increase in geopolitical risks affect the fiscal data and, accordingly, the credit rating profile of the State of Israel. Despite the war, the State of Israel shows very high accessibility to the capital markets in Israel and the world, with stable financing conditions and a strong demand for debt in the local market”.
Along with this, the Hashkal emphasized the importance of creating certainty by formulating a budget: “However, we must create as much certainty as possible for the Israeli economy, investors and rating companies. To this end, it is necessary to act as soon as possible to formulate a responsible state budget for 2025 based on a process of rebuilding the fiscal reserves through a gradual decrease in the ratio of debt to GDP. This, along with the promotion of growth engines, investment in infrastructure, response to social needs and an orderly and fenced response to the needs of the security system.”
The Prime Minister’s Office later said: “The Israeli economy is solid and functioning well. The downgrade is a consequence of Israel’s dealing with a multi-arena war that was imposed on it. The rating will rise again when we win – and we will indeed win.”
