By: Barhum Gracy. A Palestinian journalist and political writer residing in Nazareth
Most economic analysts in Israel agreed that the decision of the international company to gradate the strength of the economy of countries in front of international credits “Moody’s”, to reduce the gradation of Israel by one degree not only because of the war, although the consequences of the war have a very large weight, but also because of the form of managing the economy, especially the state budget, and add negative expectations for the Israeli economy. Here, too, many analysts blamed the person of Prime Minister Benjamin Netanyahu, and considered the decision a failure to be a recorded failure on it, along with criticisms of Finance Minister Bezalel Smotrich, who chose to underestimate Moody’s decision, despite the very negative consequences of this decision on the economy, such as the possibility of a decline in the value of the shekel, and warned global investors in their entry into the sectors of the Israeli economy, and the high cost of interest on Israeli government debt in the world.
The international company to progress the durability of the economy of countries in front of international credits “Moody’s” announced on Friday, February 9, the reduction of Israel’s grading by one degree, from A1 to A2, with negative future estimates for the Israeli economy, which analysts believe is a prelude to another reduction, while concerns have emerged that Moody’s’s decision will drag behind a similar decision from the other two global staging companies, Fitch and Standard and Four, and the second is the most important in terms of Israeli banks, and its decision directly affects its financial dependence in the world.
Israel’s A1 staging was like Saudi Arabia and Japan’s, but the new A2 staging is like the staging of Clethonia, Poland, Malta and Slovakia, which are relatively economically weak European countries, compared to Western European countries.
It is supposed that this decision was expected, because Moody’s had warned on October 19, 2023 that the gradualisation of the Israeli economy under control, and before this, Moody’s was among the global staging companies that warned in the spring of last year that the Netanyahu government’s plan, to undermine the judiciary, or what was known as the “coup against the judiciary,”, would reflect negatively on the economy and on the readiness of investors to enter the Israeli economy.
In his response to the decision, Netanyahu claimed that the Israeli economy is solid, and that the decision stems from the fact that Israel is at war, and after its end, the Israeli economy will return to prosperity. Finance Minister Betzalel Smotrich chose to disregard the decision, saying it was “just a political paper” and “the Israeli economy is strong.”
The governor of the Central Bank of Israel, Professor Amir Yaron, said that the Israeli economy is based on healthy, immune economic foundations, and is a global leader in modernisation and high-tech. “We knew how to rise from difficult periods in the past, quickly return to the path of prosperity, and we have an economy with strong pillars that ensure this rise this time as well,” he added.
The central bank sought to reassure investors that Israel had gone through economic crises, but had it never defaulted on its debts on time.
The bank called on his government to address the underpinnings of the issues outlined in the Moody’s report, in particular to work to stream budgets on infrastructure and education, encourage the employment of puritanical religious men – Haredi, and work to increase labour productivity.
The former head of Tel Aviv University’s National Security Research Institute, a prominent economist, Manuel Trachtenberg, criticised Finance Minister Smotrich, for disregarding Moody’s decision, and said the company’s report touches not only on the economic aspect, but also on each of the factors affecting the economy. Trachtenberg expressed concern that this decision would serve as a negative signal for investors in the world, and Israel should take this aspect into account.
The consequences of Moody’s decision
Economic analyst Gad Leior says in an article in the newspaper “Yedioth Ahronoth” that the consequences of Moody’s decision on the Israeli economy will be numerous, and from several aspects, and he believes, like other analysts, that the initial reaction will be a decline in the Israeli stock exchanges, but the movement of Israeli capital markets (stock exchanges), in the first three days of trading after the issuance of the decision (11, 12 and 13 February 2024) witnessed stability.
The local currency, the shekel, will also lose its value against the dollar, especially, which will lead to higher prices of raw materials, fuel and imported goods, and this will lead to an additional high wave. “This is another factor that may enter the economy into a vicious cycle of high prices. After the prices of fuel, electricity and hundreds of products in the economy, it is also expected that water prices will rise again soon and the cost of agriculture will rise,” here we also point out that on the first day of trading in currency prices after the decision (12 February 2024), the value of the shekel has stabilised against the rest of the currencies.
The downgrade is expected to increase the interest rate on loans the state is forced to obtain due to the war on the southern front, and unrest on the northern front, Lior continues. In addition, interest rates will also become more expensive for Israeli businesses and households.
“The world is aware of the dangers of war, as well as political and social instability in Israel even before the war, against the backdrop of the judicial coup plot,” he said. Therefore, several central bodies in the world have raised the interest rate on loans made to Israel.”
According to Lior, the concern in Israeli circles is that Israel’s low gradation will be for a relatively long time, if the reduction is not made further in the future, especially since Moody’s warned that the rating may continue to decline, if it sees that the situation on the northern front is escalating, and that the government’s behaviour does not provide a satisfactory response to the situation.
Not only the war, but also Netanyahu
“The fact is that Netanyahu is the one who brought havoc for the security of the State of Israel, and as of now officially he is also the one who brought havoc to the local economy,” says economic analyst Merav Arlozorov, in an article in The Marker. He’s neither “Mr. Amin” nor “Mr. Economy,” but that doesn’t bother him at all. The only thing Netanyahu saw to say after the dramatic announcement made by ratings company Moody’s, is that he has absolutely nothing to do with this decision.”
She continued: “Netanyahu said in response to Moody’s difficult decision that the reason for the reduction is only war, of course it is also unrelated to it of course, and therefore he is not responsible for it, there is nothing to be claimed against him, nor the burden of responsibility on him. This is a rude lie. The reasons for Moody’s downgrading are, of course, due to the war, and to the extreme fear of a more severe explosion on the northern front, but what led to the downgrade was the management of the war in particular, and the management of the country in general.”
“Even the economic disaster that the Netanyahu-Smotrich government brought on the citizens of Israel, which officially met the seal of ratification, with the first reduction of dependence for Israel in history, could have been prevented,” economic analyst Adrian Pilot, in an article in the Calcalyst, says. In the early days after the biggest security failure in the country’s history, all the red lights were on: it was clear that more caution was needed with regard to budget management, as a sensitive period also begins on the financial side.”
Pilot continued, “But all the warnings, clarifications, reports and offers were not heard, and not only were Prime Minister Netanyahu and Finance Minister Smotrich ignored them, but also deleted them because of political and personal interests, and they actually reversed what they should have done, because they thought it was possible to play on everyone all the time, as they played on the citizens of Israel, it is also possible to play on international rating agencies. But the offer is over and the end is tragic: for the first time, since Israel markets its debt in international markets, and is rated by rating agencies, Israel’s credit rating is declining.”
“But that’s not the end of the story: the report explaining the decision has far-reaching consequences for all of us,” Pilot adds. This tragic event is not because of the war but because of the government. The political forces in the State of Israel weaken the legislative and executive powers, and cause severe damage to the Israeli economy in the foreseeable future.”
Pilot bases on Moody’s report that the risk comes from the political trend: “One of the main reasons for the credit rating downgrade is the assessment that Israel is exposed to political risks that are highly likely to continue for the foreseeable future, even if the fighting in Gaza stops or recedes.”
Economic analyst Sever Plutsker said in an article in the Yedioth Ahronoth newspaper: “It is not the economy that prompted Moody’s to downgrade Israel’s credit rating. What prompted her for that? War; it is understood on its own that the credit rating of a country decreases when a bloody war breaks out, with its southern border and its dramatic expansion to the northern borders is very real.”
He continues: “Moody’s questions the success of the Government of Israel’s approach to freeing the abductees, warns against setting unrealistic targets for the fight, and is particularly concerned about the absence of a clear and agreed policy for the next day. The comprehensive proposal shared by the United States and Israel’s Arab neighbours for a solution in the Gaza Strip, Moody’s explains, could have contributed to improving Israel’s security; the government’s rejection of it weakened Israel in all respects, and harmed the Israeli economy.” He said that in the estimation of Moody’s experts, social unrest, cracks in internal unity and therefore political extremism, will increase after the “war cabinet” is dissolved, that is, after the “official camp” bloc withdraws from the coalition. And that’s why Moody’s downgraded it now, and attached a negative outlook for the future.”
Analyst Gad Leior, who has mentioned here, says Netanyahu’s claim that Moody’s decision because of the war is not true, “although the economic situation in Israel has deteriorated mainly due to the war, the government has not done enough to prevent a huge deficit, and is also responsible for harming the judiciary.”
In an article in the Calcalist, analyst Moshe Gorali points out that “Moody’s report talks about the weakness of the Knesset and the government, and in simple Hebrew language: the continued rule of the coalition of the Babis, the Haredis and the Haredim. This puts before us a pessimistic economic badge, that as long as the rule of this coalition continues, the existential and security threats to Israel will increase more and more. Not only are economic expectations on the table here, but rather highly arrogious political and security estimates. From this we conclude that those who dealt another blow to us, with the authoritarian coup, the weakening of society, the responsibility for the failure that led to the massacre, and the war without a real vision to end it, cannot be relied upon to save us from this disaster either.”
This article was published by The Palestinian Centre for Israeli Studies (Madar) is an independent research centre specializing in Israeli affairs, based in the city of Ramallah. Founded in 2000. The English version is courtesy of Apple translation service.