Yesterday, Tuesday, Iran launched an unprecedented missile attack that included many areas in Israel, the cost of insurance against the risks of default on Israeli sovereign debt rose to the highest level in about 12 years, and this comes in light of the Israeli forces beginning limited ground operations in southern Lebanon. This comes as the Israeli aggression on Gaza approaches its second year.
Data from Standard & Poor’s Global Market Intelligence showed that Israel’s 5-year credit default swaps jumped 10 basis points from their closing level yesterday, Tuesday, to record 160 basis points, the highest level since November 2012.
The Israeli army, which has been waging an aggression against the Gaza Strip for about a year, said on Wednesday that infantry and armored units joined ground operations in southern Lebanon.
The higher the number of points, the higher the cost of insuring sovereign debt, as it is linked to the political and economic situation of the country issuing the debt, and this paves the way for higher interest on Israeli sovereign loans, due to the high risks.
Downgrade
Yesterday, Standard & Poor’s credit ratings agency lowered Israel’s long-term rating from “A+” to “A”, due to the increasing security risks in light of the latest escalation in the conflict with Hezbollah in Lebanon, in addition to the risk of a outbreak of war. A more direct war with Iran.
The agency highlighted concerns about potential security threats, including retaliatory missile attacks against Israel, which could exacerbate the impact of tension on the economy.
“We now believe that military activity in the Gaza Strip and escalating fighting across Israel’s northern border, including a ground incursion into Lebanon, may continue into 2025, with risks of retaliation from Israel,” S&P said.
The agency said that the increasing possibility that the conflict between Israel and Hezbollah will last longer and intensify in strength poses security risks to Israel.
Moody’s lowered Israel’s credit rating by two notches to “Baa1” last week, and warned of downgrading it to “high risk” if the current escalating tension with Hezbollah turns into a widespread conflict.
Towards the debt market
Since last October 7, Israel has turned, on more than one occasion, to international debt markets to provide the necessary liquidity to finance its war on the Gaza Strip and the tensions in the north with Hezbollah.
In all of 2023, the Israeli Ministry of Finance said that the country recorded new sovereign debt amounting to 160 billion shekels ($43 billion), including 81 billion shekels ($21.6 billion) since the outbreak of the war, compared to $16.78 billion in 2022.
Israel recorded a budget deficit of 12.1 billion shekels ($3.24 billion) last August, according to the Israeli Ministry of Finance, which indicated that the ratio of the deficit to gross domestic product rose during the 12 months until last August to 8.3%, compared to 8% in the previous year. The previous July, compared to the target of 6.6% for the whole of 2024.
Spending on the war in Gaza and its repercussions that broke out last October amounted to about 97 billion shekels ($26 billion).
