Top Israeli economists say ‘never-ending’ government failures behind Fitch downgrade

A group of senior economists warns that Fitch’s downgrade of Israel’s credit rating is a sign of the continued deterioration of the country’s economy since the establishment of the government in December 2022.

“Fitch joins Moody’s and S&P in downgrading Israel and reflects that the state is already paying high interest rates on its debts,” the economists say. “The credit rating downgrade and high interest rates are not only due to the war imposed on Israel on October 7, but are the result of a never-ending series of government failures.”

Fitch late on Monday lowered the country’s score to A from A+, expecting the “conflict in Gaza could last well into 2025.” The ratings agency maintains a negative outlook on the economy, which opens the door for further downgrades as the ballooning costs of the continued military fighting weigh on public finances.

The top economists lament that Finance Minister Bezalel Smotrich is delaying the preparation of the state budget for 2025, while ignoring calls for action by Treasury officials and warnings of the Bank of Israel.

Adding to this, Education Minister Yoav Kisch promotes the transfer of huge sums to ultra-Orthodox educational institutions that do not teach core studies and the government’s policies subsidize the mass evasion of military service by the ultra-Orthodox population and thereby increase the burden of the army service on the general public, they warn.

“The government harms state institutions and civil society that are essential to the prosperity of Israel’s economy, such as the public service, the legal system, and academia,” the economists caution. “Israelis need to wake up and call as soon as possible for a fundamental change in the work of the government. Otherwise the damage the government causes may not be able to be repaired.”

Among the group members are Prof. Zvi Eckstein, former deputy governor of the Bank of Israel; Rony Hizkiyahu, former Bank of Israel supervisor of banks and accountant general; Yair Avidan, former supervisor of banks; Prof. Avi Ben-Bassat, former finance ministry director general; and Prof. Eugene Kandel, former chairman of the National Economic Council.