S&P downgrades Israel rating on heightened geopolitical risk

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Israel received its first-ever sovereign downgrade as S&P Global Ratings lowered its credit rating to A+ from AA- on heightened geopolitical risks for the region.

The nation was cut by one notch to the fifth-highest score and on a par with Bermuda and China. The outlook remains negative.

“The recent increase in confrontation with Iran heightens already elevated geopolitical risks for Israel,” the statement said.

The rating company said a wider regional conflict was not its baseline scenario, but could have a further material negative impact on Israel’s security situation. That would then impact its economic, fiscal, and balance-of-payments parameters.

All three major rating firms have put out warnings on Israel’s credit score since the onset of the war with Hamas. On October 25, S&P became the last to revise the outlook to negative on risks the conflict spreads into the country. Fitch Ratings and Moody’s Investors Service had already placed the nation’s credit score on negative watch and on review for downgrade, respectively.

Tensions in the region have intensified since Iran launched a barrage of drones and missiles on Israel in response to a strike in Syria that killed several Iranian officers on April 1. Tehran is bracing for a potential Israeli retaliation.

S&P forecast that Israel’s general government deficit will widen to 8% of gross domestic product in 2024, mostly as a result of increased defense spending. It expects higher deficits to persist over the medium term and net general government debt to peak at 66% of GDP in 2026.

The shekel has tumbled since Hamas staged the attacks on October 7, posting the longest streak of declines since 1984. The cost of hedging against losses has soared as traders brace for the next phase of the war, undaunted by the central bank’s resolve to defend the currency.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow