Moody's announced Friday it lowered Israel's foreign-currency and local-currency senior unsecured ratings to A2 from A1, and changed its outlook to negative.
The global rating agency said "the ongoing military conflict with Hamas, its aftermath and wider consequences materially raise political risk for Israel as well as weaken its executive and legislative institutions and its fiscal strength, for the foreseeable future."
"While fighting in Gaza may diminish in intensity or pause, there is currently no agreement to end the hostilities durably and no agreement on a longer-term plan that would fully restore and eventually strengthen security for Israel. The weakened security environment implies higher social risk and indicates weaker executive and legislative institutions than Moody's previously assessed," it said in a statement.
The agency said Israel's public finances are deteriorating and the previously projected downward trend in the public debt ratio has now reversed, adding it expects Israel's debt burden will be materially higher than projected before the conflict.
Moody's noted that it initiated the review for Israel's ratings downgrade on Oct. 19, 2023.