Moody's downgrades Israel's credit outlook rating in warning to Netanyahu

In a statement, Moody's explained that the affirmation of the "A1" rating "reflects Israel's strong economic growth and improving fiscal strength which Moody's expects to continue in its baseline scenario. The economy has proven resilient to many economic and geopolitical shocks over the past decades and has grown at a rapid clip, helped by Israel's globally competitive high-tech industries."

Regarding the decision to downgrade the outlook, Moody's wrote that "the change of outlook to stable from positive reflects a deterioration of Israel's governance, as illustrated by the recent events around the government's proposal for overhauling the country's judiciary... The manner in which the government has attempted to implement a wide-ranging reform without seeking broad consensus points to a weakening of institutional strength and policy predictability. As a result, the risks on Israel's rating are now balanced, leading to a stable outlook."

"All in all, the recent events offset the positive developments that had led Moody's to assign a positive outlook in April 2022, which related to strong economic and fiscal performance and the implementation of structural reforms by the previous government," the statement continued.

The agency had upgraded Israel's outlook to 'positive' in April 2022, explaining then that the key drivers for the change in outlook included the government's reform agenda that aimed to address longer-term challenges and the agency's expectation of a further reduction in the government's debt ratio.