Moody's holds negative outlook on 'Israel' over fragile Iran ceasefire
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Moody's has upheld its negative outlook on "Israel's" credit rating, warning that unchecked militarization, rising debt, and persistent regional instability are driving the economy toward deeper fiscal risk despite the fragile ceasefire with Iran.
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A demonstrator takes part in a performance during a protest against Prime Minister Benjamin Netanyahu's government in Tel Aviv, occupied Palestine, on July 5, 2025. (AP Photo/Ohad Zwigenberg)
Credit rating agency Moody's has maintained its negative outlook on "Israel's" sovereign credit rating, pointing to growing economic fragility driven by unchecked militarization and deepening regional instability. Despite the fragile ceasefires with Iran and Lebanon, Moody's made clear that "Israel" remains on a dangerous fiscal trajectory.
While the Baa1 rating remains in place for now, the agency underscored that "higher defense spending and weaker economic growth" are weighing heavily on the economy. The so-called truce with Iran has done little to ease structural risks, which Moody's describes as stemming from "a fragile" ceasefire.
In its assessment, the agency warned, "The implications of these risks for Israel's fiscal and economic outlook could be more severe than we currently assess. The recent opening of a direct military conflict with Iran will weigh further on Israel's public finances."
Recent projections indicate that "Israel's" debt-to-GDP ratio will rise to 75%, a significant increase attributed to mounting war expenditures and economic stagnation.
Moody's ties its continued negative outlook to "very high geopolitical and security risks." The economic toll of occupation and militarized governance has intensified since the October 2023 assault on Gaza has already weakened the fiscal base of the Zionist entity. As the agency noted, "Israel's significantly weakened fiscal position [is] a result of the escalation in geopolitical risk since October 2023."
Even as bombing campaigns on Gaza temporarily subside and northern ceasefires hold, Moody's cautions that "geopolitical and security risks remain significant and a source of downside credit risks for Israel."
Militarism meets meltdown
The current outlook follows a downgrade last September, when Moody's cut "Israel's" rating from A2 to Baa1, citing the "diminished quality of Israel's institutions and governance" in managing the state's finances during wartime.
Still, the agency acknowledged that "Israel" enjoys privileged access to global capital markets: "At the same time, given Israel's very strong market access, we expect debt to remain relatively affordable and for the government to have no problems meeting its funding needs."
Yet beneath the veneer of fiscal stability lies deeper instability: rising inequality, entrenched war spending, and inflation that has kept interest rates locked at 4.5%. These strains reflect a regime that prioritizes surveillance, militarism, and suppression over long-term economic health.
Unless there is a decisive turn away from militarization and toward justice, Moody's warning may be just the beginning of more severe economic consequences for a state increasingly isolated on the global stage.
Read more: Why 'Israel's' ultimate defeat will come from economic isolation
