Finance Ministry Takes Preemptive Measures After Moody’s Downgrade

By Aryeh Stern

In response to Moody’s credit rating downgrade for Israel last Friday, senior officials in the Finance Ministry are proactively engaging with other major rating agencies, including Standard & Poor’s and Fitch, to prevent further downgrades.

Accountant General Yali Rothenberg has scheduled meetings with officials from these agencies in London this week. During these discussions, Rothenberg and Treasury officials plan to assert that Moody’s decision was premature, emphasizing Israel’s economic resilience, swift recovery post the war’s onset, and the government’s proactive measures to prevent a deficit decline. These measures include upcoming tax increases, such as VAT and health tax, set for implementation in January next year.

Rothenberg also intends to meet with various European investors to encourage investment in Israel’s bonds, assuring them of the absence of default risk, given Israel’s consistent fulfillment of financial obligations for the past 75 years.

Economic analysts suggest that Rothenberg must address the language used by Finance Minister Bezalel Smotrich towards Moody’s economists and clarify the approval process of the new state budget for 2024. The budget is scheduled to pass through the Knesset during the second and third readings in the coming days, with an emphasis on the measures necessary due to the ongoing war.

In an interview on Monday by Yediot, Smotrich expressed support for Moody’s assessment, stating, “Moody’s commends the Israeli economy, highlighting its resilience and rapid recovery over the past three months.” He also emphasized that Moody’s acknowledged the government’s implementation of announced tax increases while pointing out weaknesses in both the government and the Knesset as contributing factors to their decision.