(Bloomberg) — Israel has been downgraded by S&P Global Ratings, which cited heightened geopolitical risks when the country cut its government bond credit rating from AA- to A+ on Thursday.
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The country fell one step to the fifth highest score, comparable to Bermuda and China. The outlook remains negative.
“The recent increase in confrontation with Iran increases the already heightened geopolitical risks for Israel,” the company statement said.
S&P said a broader regional conflict is not the base case but could have a further material negative impact on Israel’s security situation. This would then have consequences for the economic, budgetary and balance of payments parameters.
All three major credit rating agencies have issued warnings about Israel’s creditworthiness since the war with Hamas began. On October 25, S&P revised its outlook to negative on the risks of the conflict spreading to the country. Moody’s Ratings gave the country its first downgrade in February, giving it the sixth highest investment grade rating.
Tensions have increased in the region since Iran launched a barrage of drones and missiles on Israel in response to an attack in Syria that killed several Iranian officers on April 1. Tehran is bracing for possible Israeli retaliation.
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S&P predicts that Israel’s government deficit will reach 8% of gross domestic product by 2024, mainly due to increased defense spending. It expects higher deficits to persist in the medium term and net government debt to peak at 66% of GDP in 2026.
(Corrects the reference to previous reductions in the first and fifth paragraphs and removes currency movements in the last paragraph.)
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