Israel economy poised for recovery despite Moody's downgrade, says bank of Israel Governor

New Delhi

Amidst the backdrop of Moody's recent downgrade of Israel's sovereign credit rating, Bank of Israel Governor Amir Yaron remains optimistic about the country's economic prospects.

According to a Reuters report, Yaron asserted on Sunday that while the downgrade poses challenges, the Israeli economy is resilient and will bounce back from the impact of the recent conflict.

He emphasised the need for proactive measures from the government to address the concerns highlighted by Moody's.

Yaron urged the government and the Knesset to take decisive action to tackle the economic issues outlined in the report.

Yaron's sentiments echo a broader confidence in Israel's ability to navigate through turbulent times. He highlighted the country's history of overcoming adversity and swiftly returning to prosperity.

Despite the challenges posed by the conflict and Moody's downgrade, Yaron believes that the Israeli economy possesses the strength to ensure a robust recovery.

He emphasised the importance of maintaining fiscal discipline and prioritising spending on initiatives directly related to addressing the repercussions of the conflict.

Moody's decision to downgrade Israel's credit rating to "A2" - a first-ever for the country - underscores the economic and political risks stemming from the recent war with Hamas.

The agency cited concerns about the budget deficit ballooning beyond initial expectations due to the conflict.

The downgrade raises the spectre of increased borrowing costs for Israel and the possibility of implementing budget cuts and tax hikes to mitigate the deficit.

Moody's projected Israel's debt-to-GDP ratio to peak at 67 per cent by 2025, up from 62.1 per cent in 2023.

While the downgrade poses immediate challenges, Israel's policymakers are already taking steps to address the situation.

Lawmakers recently gave preliminary approval to a revised state budget for 2024, allocating additional funds to finance the war effort and provide compensation to affected parties.

The budget also includes provisions for a significant rise in the deficit to 6.6 per cent of GDP, up from 2.25 per cent previously.

Prime Minister Benjamin Netanyahu expressed confidence in Israel's ability to reverse the downgrade, affirming that the rating would improve once the conflict is resolved.

(With inputs from Reuters)