Moody's Maintains Israel Baa1 Rating Despite Rising Fiscal Strains, Conflict Risks

Moody’s Investors Service has affirmed Israel’s long-term local and foreign-currency ratings at Baa1 but maintained a negative outlook due to heightened fiscal pressures linked to ongoing geopolitical tensions, especially the conflict with Iran. The agency projects Israel’s debt-to-GDP ratio will rise to around 75% in the medium term, an increase from previous estimates of 70%, driven by higher defense expenditures and slower economic growth. Despite these challenges, Israel’s economy showed resilience with a 2% growth forecast for 2025 and a stronger 4.5% expansion expected in 2026, supported by strong private consumption, high-tech sector investments, and reconstruction efforts. Moody’s emphasized the fragile ceasefire with Iran and warned that renewed conflict could cause material damage to infrastructure, weaken security conditions, and negatively impact investment and overall economic activity. The assessment also highlights the critical role of unprecedented U.S. military assistance as a pillar of Israel’s external support amid current tensions. Other major rating agencies, including S&P Global and Fitch, have similarly affirmed Israel’s ratings but cautioned about the risks of prolonged or intensified conflict affecting fiscal and economic performance.