S&P warns Israel’s credit rating at risk of further downgrades

Standard & Poor’s Global Ratings director Maxim Rybnikov warns that weakening state institutions and an escalation of the security situation pose major risks for Israel’s country credit rating.

“By far, the biggest constraint for the rating today is really the institutional risk and also event risks,” says Maxim Rybnikov, London-based director at S&P Global Ratings speaking via video conference at the Eli Hurvitz conference on Economy and Society in Jerusalem. “The institutional assessment is a factor which has a high weight in our current methodology.”

“We look at the existence of comprehensive checks and balances between various institutions, cohesiveness of civil society, data availability, and respect for the rule of law,” says Rybnikov.

Earlier this month, S&P reaffirmed Israel’s A/A-1 credit rating — which it downgraded twice last year — while keeping its outlook negative, meaning that the country could be facing further downgrades. A lower rating raises credit costs for the government, businesses and households.

“We closely followed the geopolitical events last year, which significantly increased risks for Israel, and this is why the two downgrade rating actions took place,” says Rybnikov. “Going forward, we don’t know when and how the war is going to end.”

“For us, it certainly presents risks, especially in a scenario where there’s a more significant escalation — if Iran, for example, gets directly involved, which is not our baseline scenario, but if that would happen, we could see the influence on multiple credit factors across the board,” he cautions.

Rybnikov notes that the rating agency could revise Israel’s credit outlook to stable from negative, if there was a reduced “likelihood of military escalation broadening, especially with Iran.”