Moody\u2019s downgraded Israel\u2019s credit rating for the first time and lowered its outlook from stable to negative. While the main focus of the downgrade was the war\u2019s impact on Israel\u2019s economic and fiscal stability, Moody\u2019s list of concerns also included political upheaval and heightened security risks \u2013 even after the war in Gaza winds down or stops.<\/p>\n\n\n\n
The political and social risks Moody\u2019s mentioned in its announcement are relevant to Israel\u2019s credit rating because they could impact key economic variables like economic growth, budget deficit, and the debt-to-GDP ratio.\u00a0Direct impacts\u00a0could include reduced investment and private consumption, due to the negative effects of political uncertainty, and slower economic growth.<\/p>\n\n\n\n
Indirect impacts could arise through decisions of the government and the Knesset on economic policy issues (making it difficult to implement unpopular economic decisions, such as fiscal adjustments and structural reforms). What can the government do to improve the economic and fiscal soundness of the Israeli economy in the eyes of the rating agencies and financial markets, amid war and political uncertainty?<\/p>\n\n\n\n
More could be done. The government had a\u00a0rare opportunity\u00a0to carry out large-scale and significant actions during the preparation of the revised budget for 2024, which was recently presented to the public and is currently undergoing legislative proceedings in the Knesset. While the government made some moves to reduce the deficit in 2024 and in subsequent years, certainly more could have been done \u2013 especially long-term moves and less reliance on one-time measures to reduce expenses or increase income from various sources.<\/p>\n\n\n\n
Structural reforms to boost long-term economic growth were lacking. For example: it decided to raise the VAT rate and increase the health tax, instead of canceling tax exemptions and benefits that create distortions and failures in the economy. It maintained enhanced budgets for yeshivot and for some educational institutions that do not teach basic skills \u2013 that will not support future economic output. And the government avoided a significant reduction in the number of government ministries and the number of ministers, which are much bigger than needed.<\/p>\n\n\n\n
There is a silver lining for Israel. It is not too late for the government to correct course and move forward on a road map for recovery. Even if the proposed budget is approved by the Knesset, the government still has room to implement efficiency measures, drive additional structural reforms for growth, and reorder priorities where necessary.<\/p>\n\n\n\n
While other rating agencies mull over their decisions regarding Israel\u2019s creditworthiness, and as the war continues, Israel\u2019s security and economic future are being tested. Israel can pass this test, but the government has a narrow window to make meaningful changes and improvements.<\/p>\n\n\n\n
The government\u2019s response to\u00a0Moody\u2019s downgrade\u00a0will not only determine Israel\u2019s credit rating but will also shape Israel\u2019s economic path forward. Israel must act quickly and boldly.<\/p>\n\n\n\n
Israel\u2019s road to recovery can, and must, begin now.<\/p>\n\n\n\n
Published in The Jerusalem Post<\/a>, (“The road to recovery following Moody\u2019s hits on Israel\u2019s credit rating – opinion”, Feb. 14, 2024)
First published in Hebrew in Israel Hayom<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"Moody\u2019s downgraded Israel\u2019s credit rating for the first time and lowered its outlook from stable to negative. While the main focus of the downgrade was the war\u2019s impact on Israel\u2019s economic and fiscal stability, Moody\u2019s list of concerns also included political upheaval and heightened security risks \u2013 even after the war in Gaza winds down […]","protected":false},"featured_media":9639,"template":"","article-category":[525],"custom-tags":[36,46,710],"ppma_author":[52],"class_list":["post-9638","article","type-article","status-publish","has-post-thumbnail","hentry","article-category-publications","custom-tags-economy","custom-tags-economy-of-israel","custom-tags-war"],"acf":[],"yoast_head":"\n