How war on Gaza dealt ‘Israel’ mighty economic blow: Axios
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Moody's cut "Israel's" credit rating one notch, from A1 to A2, and noted the country's poor finances.
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Palestinians evacuate wounded in the Israeli bombardment of Rafah, southern Gaza Strip, Tuesday, Oct. 17, 2023. (AP)
"Israel's" funding of the war on Gaza has resulted in its first-ever credit downgrade.
Given the expense of the war, "Israel" will need to borrow almost $58 billion this year, according to Bloomberg, which equates to nearly $23,000 per household, and 3 times the amount of the fiscal deficit in 2022.
Moody's cut "Israel's" credit rating one notch, from A1 to A2, and noted the entity's poor finances, as well as the ongoing war on Gaza's potential to "weaken its executive and legislative institutions."
Earlier today, Moody's took further action and downgraded the deposit ratings of five Israeli banks, from A2 to A3, designating the outlook on long-term deposit ratings as negative.
The US credit ratings agency lowered the long- and short-term deposit ratings of "Bank Leumi Le-Israel, Bank Hapoalim, Mizrahi Tefahot Bank Ltd., Israel Discount Bank Ltd., and First International Bank of Israel Ltd. (FIBI)," by one notch to A3 from A2.
Moody’s said the downgrade is “driven by a lower government support uplift incorporated in those ratings because of the downgrade of Israel’s sovereign ratings.”
The action from Moody's was predicted by the markets, as the agency has been reviewing the entity for a possible downgrade since October. However. the Israeli government's reaction to the rating may have surprised some.
"Israel's" Finance Minister, Bezalel Smotrich, stated that the downgrading was "not based on serious economic arguments and is entirely a political manifesto" and that it was rooted in "a lack of confidence in the righteousness" of the war.
Prime Minister Benjamin Netanyahu claimed the rating downgrade is unrelated to the economy, but the occupation's public finances have taken on an unavoidable religious component.
Smotrich stated upon entering office that his economic plan would be "infused with religious beliefs laid out in the Torah," according to Reuters.
On X, Netanyahu biographer Anshel Pfeffer described Moody's downgrading as "an indictment of Finance Minister Smotrich's God-fearing economic policy."
"Israel" pays close attention to where its dollar-denominated bonds trade on foreign markets, as well as the message the bond price conveys about the entity's economic health.
As a result, Bloomberg reported that most of its 2024 budget shortfall would be funded domestically, with dollars borrowed solely through covert private placements.
These borrowings are often more expensive than bond issues, but they have the advantage of not bearing any public interest rate, which might result in cost savings for Israeli enterprises, whose borrowing costs are tied to the entity's public bonds.
War on Gaza to cost 'Israel' about 10% of 2024's GDP: Central Bank
In January, the Israeli Central Bank governor supported a cabinet-approved budget based on claims of delivering sufficient fiscal amendments that could stabilize the growing debt the occupation has collected since waging a genocidal war in Gaza.
According to Amir Yaron, the budget would plateau public debt at an estimated 66% of the gross domestic product for the foreseen years, compared to 2023's 62%.
Speaking at the World Economic Forum, Yaron told Bloomberg TV, “Steps taken to stabilize Israel’s future debt are a very important statement to the markets.”
Referring to calculations, Yaron stated that the war on Gaza will cost the Israeli economy 10% of the 530 billion dollar GDP, and revenue will shrink by 2%.
The Israeli Central Bank also made interest cuts last month, reducing them to 4.5% when markets stabilized for a while. “We lowered the interest rate after we saw markets stabilize and inflation decelerating — it has just landed at 3%, the top of our target range,” Yaron said.
Moreover, he added that unprecedented negative demand for construction was the primary factor for the inflation shock. Yaron stated that in case the genocide financial spillover reintensifies, the bank's monetary policy will have to be more cautious.
