S&P Could Lower Israel's Rating if War Expands beyond Gaza

A director at the credit rating agency Standard & Poor's said that the agency may lower Israel's rating if the war with Hamas expands to include other fronts, but it is expected that Israel will be able to bear the economic repercussions of the war if it does not expand by making the necessary adjustments in the budget to compensate for the increase in spending. 

In October, the credit rating agency confirmed Israel's rating at "AA-" but revised its outlook to negative from stable, pointing to the risks of expanding the war between Israel and Hamas with a more pronounced impact on the economy and the security situation.

Maxim Rybnikov, Director of Sovereign Debt and Public Finance Ratings for Europe, the Middle East and Africa at Standard & Poor's, said: "The negative outlook currently indicates at least one opportunity for a downgrade in the next year or two," according to Reuters.

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He explained that if the security and geopolitical risks facing Israel increase due to the escalation of the conflict, i.e. a direct confrontation with Hezbollah in Lebanon or a confrontation with Iran, this may lead to a downgrading of the rating.

Rybnikov continued, "We can also lower the rating if it is proven that the impact of the conflict on Israel's economic growth, financial situation, and balance of payments is more profound than we currently expect."

According to Rybnikov, Standard & Poor's expects the Israeli economy to grow by only 0.5% in 2024, and that the budget will achieve a total deficit of 10.5% of GDP in 2023/24, "but there are risks that may threaten these expectations."

Rybnikov said that he is following discussions on amending the 2024 budget to add military expenditures estimated at billions.

This month, the Israeli Cabinet approved the 2024 budget, which included amendments to add expenditures of about 55 billion shekels ($15 billion). The budget awaits approval by the Knesset.