Israel Risks Moody’s Downgrade as War With Hamas Gets Messier

Moody’s Investors Service has placed the Government of Israel’s A1 long-term foreign-currency and local-currency issuer ratings on review for downgrade. 

Previously, the outlook was stable, according to a statement on Thursday.

Moody’s has also placed on review for downgrade Israel’s A1 foreign-currency and local-currency senior unsecured ratings and its (P)A1 foreign-currency senior unsecured shelf and senior unsecured MTN programme ratings.

Israel’s backed senior unsecured rating has been affirmed at Aaa. “The related issuances benefit from an irrevocable, on-demand guarantee provided by the government of the United States (Aaa stable),” the rating agency said.

“The initiation of the review is triggered by the unexpected and violent conflict between Israel and Hamas, in response to a large-scale, multipronged attack by Hamas,” it said. “The most important consequence is the human cost arising from loss of life. This rating announcement addresses the credit implications of recent events.”

Moody’s said Israel’s credit profile has proven resilient to terrorist attacks and military conflict in the past. 

“However, the severity of the current military conflict raises the possibility of longer lasting and material credit impact. The review will focus on the likely duration and scale of the conflict, and on assessing its implications for Israel’s institutions, in particular the effectiveness of its policymaking, its public finances and the economy. The review period may be longer than the typical three months,” it added.

The military conflict is increasing Israel’s already relatively high exposure to geopolitical risks, according to the statement.

It said during the review period, Moody’s will assess whether the conflict is likely to move towards resolution or whether there is a likelihood of significant escalation over an extended period. 

“While a short-lived conflict could still have credit impact, the longer lasting and more severe the military conflict, the greater its impact is likely to be on policy effectiveness, public finances and the economy,” it added.