S&P cuts Israel's credit rating

• Published date: 19 April 2024
• Author: Bar Lavi
• Publication title: Globes (Rishon LeZion, Israel)

Why has this happened

In S&P's announcement, the agency estimates that the recent rise in the conflict between Israel and Iran increases the geopolitical risks that were anyway high for Israel. Although S&P does not see a broad scale regional conflict, the war between Israel and Hamas and the confrontation with Hezbollah will continue throughout 2024, in contrast to the previous estimation that the fighting would end in no longer than six months.

In addition, the ratings agency sees the government's fiscal deficit widening to 8% - higher than the government's own target of 6.6%. "We forecast that Israel's general government deficit will widen to 8% of GDP in 2024, mostly as a result of increased defense spending. Higher deficits will also continue in the medium term," S&P wrote. S&P also estimates that Israel's debt to GDP ratio will reach 66% in 2024, up from 60% last year.

What scenarios does S&P see?

S&P's fundamental scenario is based on several points: The war between Israel and Hamas continues, probably at a lower intensity, throughout 2024, with routine exchange of fire with Hezbollah on the northern border but no escalation of the direct conflict with Iran or a broader regional conflict in the Middle East.

S&P wrote, before the latest reports of explosions in Iran, "We currently see several possible military escalation risks, including a more substantial, direct, and sustained military confrontation with Iran. Israel is under international pressure to restrain its response to the April 13 attack, while Iran has announced its intention not to escalate. However, in our opinion there remains risks of an accident or miscalculation, especially if there are more exchanges of fire between the two sides."

Another scenario includes expansion of the conflict with Hezbollah on Israel's northern border. "Expansion...