Moody’s downgrades Israel’s credit rating

Global rating agency Moody's on Friday affirmed its sovereign credit rating at ‘A1 but downgraded the outlook on the Israeli government's credit ratings to ‘stable’, from ‘positive’.

In a statement, Moody's explained that the affirmation of the ‘A1’ rating reflects Israel's strong economic growth and improving fiscal strength which Moody's expects to continue in its baseline scenario. The economy has proven resilient to many economic and geopolitical shocks over the past decades and has grown at a rapid clip, helped by Israel's globally competitive high-tech industries.

Moody's concerns

Regarding the decision to downgrade the outlook, Moody's wrote that the change of outlook to stable from positive reflects a deterioration of Israel's governance, as illustrated by the recent events around the government's proposal for overhauling the country's judiciary... The manner in which the government has attempted to implement a wide-ranging reform without seeking broad consensus points to a weakening of institutional strength and policy predictability. As a result, the risks on Israel's rating are now balanced, leading to a stable outlook.

"All in all, the recent events offset the positive developments that had led Moody's to assign a positive outlook in April 2022, which related to strong economic and fiscal performance and the implementation of structural reforms by the previous government," the statement continued.

The agency had upgraded Israel's outlook to 'positive' in April 2022, explaining then that the key drivers for the change in outlook included the government's reform agenda that aimed to address longer-term challenges and the agency's expectation of a further reduction in the government's debt ratio.

Netanyahu and Herzog spoke with Moody's

Prime Minister Benjamin Netanyahu and President Isaac Herzog spoke to officials at Moody’s on Friday before the publication of the rating, in order to sway them not to downgrade the rating.

Israel's current rating ‘A1’ is an upper-medium score. This indicates that Israel is capable of repaying short-term loans.

Moody had previously warned the government of economic impacts on its proposed legislative policies and many economists echoed these concerns.

In March, Moody said the reform, if implemented in full, could materially weaken the strength of the judiciary and be credit negative. The planned changes could also pose longer-term risks for Israel’s economic prospects, particularly capital inflows into the important high-tech sector.

Fitch, another credit assessor, previously chose to maintain Israel’s A+ credit rating in March, but with a caveat of its own, “Fitch believes the reform could hurt Israel’s credit profile by weakening governance indicators or if the weakening of institutional checks leads to worse policy outcomes or sustained negative investor sentiment.”

US denies Syria-Lebanon-Israel gas deal

The official Twitter account of the US State Department’s Bureau of Near Eastern Affairs denied a claim that there was a secret deal that would see Israel supply gas to Lebanon.

This raises many questions because the media had not reported that the US had brokered a deal between Israel and Lebanon; reports had merely indicated that Israel could supply gas to Jordan and that gas would find its way onward, perhaps to Syria or Lebanon in some complex arrangement.  

The overall perception is that the deal may not take place; in fact it is not clear if the deal is real. The deal involves too many ifs and buts. The gas might have been for Jordan, a country that does not have large energy supplies, and supply to Syria and then to Lebanon may be loud thinking. Experts believe that the gas line would take years to be repaired from Syria to Lebanon; other reports said an energy swap might be involved.  

Who would come up with a complex deal involving moving gas from Israel to Egypt, Jordan and Syria by pipeline? The whole concept was only to stop Lebanon from taking Iranian energy products. 

Lebanon is in the middle of a financial and energy crisis. This is caused partly by Hezbollah’s stranglehold on the government and the fact that wealthy Lebanese keep their money abroad and don’t pay taxes. Like many countries, Lebanon has plenty of wealth but wants other countries to foot the bill so its elites can enjoy restaurants in Paris and sports cars.

Lebanon probably has more fancy villas, sports cars, servants and maids for its middle and upper class than Israel does, but the country is “poor” because too much of the money has been siphoned off and sent abroad. This is a traditional model of governance where money is taken abroad and then Lebanese demand that the US and others pay for everything. 

Meanwhile, American taxpayers who can’t afford the sports cars and servants that are common in Beirut have to pay for Lebanon’s army because the billionaires and millionaires who run Lebanon’s sectarian feudal political system are too busy partying with supermodels and owning yachts.

This isn’t conjecture, a Lebanese political leader, who doesn’t seem to pay any taxes in Lebanon, gave US$16 million to a model, according to The New York Times. But Americans, Israelis, Jordanians and other people who work for a living and see their earnings evaporate due to inflation are being asked to “save” Lebanon from Iran so that its upper class can continue the good life. Is this really a realistic plan? 

At the end of the day, the idea of bailing out Lebanon’s elites to keep Iranian gas off the streets of Beirut may not come to pass because of its complexity, not because people in the US or Israel or other countries might think the idea boorish and crass. Washington has slapped sanctions on Damascus, but media reports asserted that the Syrian regime might benefit from the gas deal by positioning itself to supply Lebanon’s energy needs.

The Assad regime, which floods the region with narcotics, hosts Hezbollah and is an ally of Iran, was supposed to be a conduit for the energy needs of Lebanon, to supposedly counter the Islamic Republic. This is like the proverbial “robbing Peter to pay Paul” where you work with one Iranian ally to supposedly counter another. If the Syrian regime and Hezbollah benefit, why was the United States, Israel and Jordan or Egypt supposed to be involved in the deal?

The US denial of the reports indicates these were leaked to scuttle the deal in the first place. Lebanon’s ruling elite officially dislike Israel and they are held hostage by Hezbollah, which threatens anyone who has any contact with the Jewish state. Lebanese law even makes it illegal to send an email to or converse with Israelis.

If Beirut hasn’t been able to sort out a maritime dispute with Jerusalem, how can media reports indicate that Israeli gas might somehow benefit its northern neighbor? Such a concept seems far-fetched. And even if it was floated as some kind of energy swap – where gas flows to one country and that country swaps it for other gas from a third country and this goes to Lebanon – the whole idea would require more regional stability than currently exists.

Smugglers from Syria gunned down a Jordanian soldier and wounded other Jordanians over the weekend. The idea that Amman will agree to work with a Syrian regime that is empowering drug smugglers may not be a reality.

While it is true that Egypt, Jordan, the Gulf States and Russia want a more stable Syrian regime – and it’s also true that Israel has interests in not having Lebanon become more poor and chaotic – the ability to get all these interests aligned seems difficult. If the US could pull it off, it would be an accomplishment of the Biden administration.

The question is whether the deal would actually reduce Iran’s role in Lebanon, or simply give Tehran breathing space to spend resources on Hezbollah’s arsenal, rather than see Iran trying to sort out Lebanon’s gas and electric mess. Perhaps Iran will benefit either way.