The Cost Israel is Paying For War

Moody's Investors Service has expressed serious concerns about Israel's long-term economic stability after cutting country's credit rating by two notches. downgre, announced on Friday last week, was driven by rising geopolitical tensions and domestic political risks, as Israel's military continues to be engaged in an intense conflict. Moody’s flagged that ongoing war and government's policy choices could have lasting consequences for economy and public finances.

This is second time this year that Israel’s credit rating has been lowered, with latest downgre coming just after Israel conducted a major strike in Beirut, killing Hassan Nasrallah, leer of Hezbollah terror group. Though timing of Moody's announcement coincided with military action, agency clarified that its decision h been prepared in vance.

Speaking to investors following downgre, Moody’s noted that while Hezbollah’s capabilities have been weakened after what y described as a "big military success," agency remains concerned about Israel's future security outlook. Moody’s said Israel lacks a clear exit strategy from ongoing military conflict, a factor it deems essential to restoring stability and confidence needed for economic growth and investment.

agency furr emphasized potential long-term effects of war on Israel’s economic recovery. "We are still very much concerned that Israel has no real exit strategy from military conflict that would restore a level of certainty and security for Israel in future, which it said is ultimately essential for investments in country," Moody's commented.

Domestic Political Risks Highlighted

Moody’s also criticized Israeli government’s domestic policies, which it claims have heightened social tensions and contributed to downgre. agency pointed out that actions like settler violence in West Bank, seen by Israel’s own security services as a security threat, and justice minister’s attempts to weaken judiciary, have increased political instability in country.

In dition, Moody’s expressed concern that government’s political moves could le to formal or informal tre restrictions and result in weakened international diplomatic support. rating agency specifically noted that government’s handling of domestic issues ds to existing geopolitical uncertainties, furr straining investor confidence.

War’s Economic Toll

Moody’s projections for Israel’s economic outlook were bleak, noting that growth would not return to pre-war levels anytime soon. agency warned that increased defense spending, combined with a weakened economy, would furr strain public finances in months to come.

“Moody’s does not expect Israel’s credit rating to go back up very fast, citing a very high level of uncertainty around country’s longer term security prospects,” agency noted. agency also voiced skepticism over wher government’s coalition partners would support necessary fiscal tightening measures to manage increased costs of war.

rating agency also criticized government for increasing 2024 budget ceiling rar than implementing spending cuts, as recommended by officials in Israel’s Finance Ministry.

Potential for Furr Downgres

Moody’s warned that Israel’s credit rating could face furr downgres if conflict escalates, particularly if it involves or regional powers such as Iran. y also indicated that a more severe economic downturn or greater financial strain on public sector could le to ditional credit downgres in future.

For now, agency remains doubtful that Israel will see a rapid recovery. Even if re were a short-term military victory, Moody’s suggests that deeper, structural challenges facing country—both in terms of security and political stability—are unlikely to disappear soon.