Prime Minister Benjamin Netanyahu and President Isaac Herzog held talks earlier this week with officials at Moody’s regarding the release of Israel’s credit rating, in which the global rating agency downgraded Israel’s credit outlook from ‘positive’ to ‘stable’ on Friday.
Netanyahu and Herzog reportedly asked the agency to refrain from downgrading Israel’s credit rating. The Finance Ministry is concerned that the protests against Israel’s judicial overhaul have caused an unfavorable change in Israel’s credit rating, according to Ynet.
The President’s Residence confirmed the report, adding that calls by Herzog were done at the request of the Finance Ministry.
What is Israel’s current rating and what changes could be expected?
Israel is currently rated A1 which is an upper-medium score. This indicates that Israel is capable of repaying short-term loans.
The changing of status could dramatically impact Israel’s economy. Israel has borrowed hundreds of billions of shekels with an interest rate of 0.4% if the loan is returned within 30-100 years. Israel’s interest rate is currently at 4.5%.
The decline in the shekel’s value will likely cause increased inflation and raise Israel’s interest rates.
Moody’s had previously warned the government of economic impacts on its proposed legislative policies and many economists echoed these concerns.
Fitch, another credit assessor, previously chose to maintain Israel’s A+ credit rating in March, but with a caveat of its own: “Fitch believes the reform could hurt Israel’s credit profile by weakening governance indicators or if the weakening of institutional checks leads to worse policy outcomes or sustained negative investor sentiment.”
In March, Moody’s said the reform, if implemented in full, “could materially weaken the strength of the judiciary and be credit negative. The planned changes could also pose longer-term risks for Israel’s economic prospects, particularly capital inflows into the important high-tech sector.”
Herb Keinon contributed to this report