By Steven Scheer
JERUSALEM, Jan 21 (Reuters) – The ceasefire agreement between Israel and Palestinian militant group Hamas in Gaza reduces the risks to Israel’s public finances and could improve its sovereign credit rating, Moody’s Ratings said on Tuesday.
The ceasefire, if adhered to, also reduces the risk the conflict could escalate, drawing in Iran, with resulting spillover effects on energy prices and global supply chains due to shipping disruption in the Red Sea, it said in a report.
Israel’s rating had never been downgraded before last year, but the heavy cost of the last 15 months of fighting in both Gaza and Lebanon saw it cut multiple times by the major rating firms such as Moody’s, S&P Global and Fitch.
“For Israel, effective implementation of the ceasefire agreement and additional progress towards a durable de-escalation of hostilities in Gaza would reduce downside risks to the sovereign’s credit strength,” said Moody’s analyst Christian Fang.
Last week, Fitch’s top sovereign rating analyst also said a ceasefire in the war in Gaza should be positive for Israel’s under-pressure credit rating.
Ceasefire Brings Hope in Devastated Gaza After 15 Months of War
Moody’s downgraded Israel’s credit rating two notches to “Baa1” from “A2” in September and maintained a negative outlook, citing escalation of the conflict in the region with Lebanese armed group Hezbollah. Israel in November forged a ceasefire deal with Hezbollah.
A ceasefire in Gaza would help sustain the ceasefire agreement with Hezbollah, Fang said.
“Israel’s military conflicts with Hamas and Hezbollah have exacted economic and fiscal costs,” he added.
The first phase of a ceasefire with Gaza took effect on Sunday, which led to the release of three of 33 hostages held by Hamas since its Oct. 7, 2023 attack on Israel. Some 94 hostages remain in Gaza. Israel also began releasing Palestinian prisoners as part of the deal.
Phase one will last for 42 days and negotiations are still needed for a permanent cessation of hostilities that would lower geopolitical tensions.
“If adhered to and further progress is made, the ceasefire agreement reduces a protracted conflict’s near-term downside risks to Israel’s economy and public finances,” Moody’s said.
Israel recorded a budget deficit of 6.9% of gross domestic product in 2024 due to the spike in defence spending to fund the military conflicts.
The 2025 budget, which has yet to be approved, aims for a deficit of 4.4% of GDP, although many economists see this as optimistic and a finance ministry official said last week it could reach 5%.
(Reporting by Steven Scheer, Editing by Bernadette Baum and Christina Fincher)
