In a move sending ripples through financial and political circles alike, global credit rating giant Moody’s has unexpectedly pushed back its long-anticipated report on Israel’s sovereign credit rating from spring to September 2025, citing a combustible mix of regional instability, internal political turmoil, and fiscal belt-tightening.

This dramatic delay comes on the heels of three successive credit downgrades Moody’s handed Israel over the past year—each driven by ballooning security expenditures and deepening governance concerns. While another immediate downgrade is off the table for now, Moody’s didn’t exactly offer a clean bill of health either.

Instead, the agency issued a stark investor warning, painting a sobering picture of Israel’s geopolitical fragility. The timing? Impeccably symbolic: the advisory dropped on the same day the Knesset passed a controversial state budget, slashing social programs and tightening spending across the board.

Knesset passes 2025 state budget as Moody's keeps credit rating at a low

'We see no elements for growth, we see a very significant burden on the economy, on the people who actually work,' says Dr. Alex Coman

With @_biancazanini pic.twitter.com/ZiUUktZB9p

— i24NEWS English (@i24NEWS_EN) March 27, 2025

Moody’s Moves to U.S. Control – and the Tone Changes

In a notable development, this round of evaluations was spearheaded not by Moody’s European analysts, but by its U.S.-based team, marking a shift in oversight that some Israeli officials say has already borne fruit.

“There’s clearly a different tone now,” said one senior Israeli source involved in the talks. “The Americans appear to recognize that Israel’s economic fundamentals are resilient and sound, despite the immense pressures we’re under.”

Sources close to the matter described a series of virtual briefings between Moody’s economists and top Israeli financial brass, including representatives from the Finance Ministry, Bank of Israel, and Prime Minister’s Office. The sessions reportedly focused on the government’s controversial judicial overhaul plans, with analysts expressing deep unease.

Moody's predicted that Israel's credit rating would remain at a Baa1, the country's lowest-ever rating. https://t.co/vTWIXC8ydV

— The Jerusalem Post (@Jerusalem_Post) March 25, 2025

But analysts were also reassured—paradoxically—by the massive wave of civil protests sweeping the country. The popular resistance was interpreted not as a sign of chaos, but of a vibrant democracy flexing its muscles, with Moody’s taking note that several proposed reforms may yet be struck down by Israel’s own Supreme Court.

Conflict, Cease-Fires, and a Glimmer of Hope

Moody’s also flagged escalating military activity on multiple fronts—from Hezbollah in the north to Hamas in Gaza—as a continued source of uncertainty. Yet analysts observed a relative decline in combat intensity, and speculated that a hostage release deal, possibly involving U.S. diplomatic pressure and even a temporary cease-fire, could shift the security calculus in the near term.

Among the potential game-changers: the return of an American citizen held captive, a scenario that could not only reduce tensions but also bolster regional confidence in Israel’s diplomatic and military posture.

After the budget approval, the credit rating agency Midroog says that high political risks have weakened Israel’s economic and fiscal strength.

— The Israeli Spectator (@isrspectator) March 25, 2025

Economic Silver Linings: High-Tech Windfalls and Wall Street Optimism

Despite the storm clouds, Israel’s tech engine continues to fire on all cylinders. Moody’s was encouraged by two massive tech exits—valued at a combined $35 billion—which are expected to inject a significant tax windfall into government coffers over the coming quarters.

This surge in private-sector performance has served as a counterbalance to fiscal concerns, with some analysts predicting a more stable revenue stream to help narrow the country’s widening deficit.

Tax Tug-of-War: Bank of Israel vs. Government

On the fiscal front, the Bank of Israel is urging tax hikes—particularly targeting middle-class earners—to help close the budget gap. The central bank’s annual report recommends increasing income taxes on households in deciles 5 through 8, beginning in the 2026 budget cycle.

But with elections looming, political appetite for tax hikes is virtually nonexistent.

Finance Minister Bezalel Smotrich and Prime Minister Benjamin Netanyahu have instead hinted at tax reductions in the near term, aimed at easing cost-of-living pressures and boosting consumer confidence heading into campaign season.

Israel’s rock bottom credit rating could continue throughout the year, according to Moody’s https://t.co/yiO11RdkRW#Israel #IsraelEconomy #CreditRating #Moodys #EconomicAnalysis #IsraelFinance #MarketTrends pic.twitter.com/reqoFgYPNt

— All Israel News (@all_israel_news) March 27, 2025

Even with recent tax hikes—most notably a 1% VAT increase, steeper National Insurance contributions, and a freeze on benefit adjustments—Israel’s tax burden remains nearly 5% lower than the OECD average. Public civilian spending? A full 9% below the OECD benchmark relative to GDP.

A Delayed Verdict – But the Jury is Still Watching

Moody’s plans to reassess Israel’s rating in September, likely after the dust settles on both the military front and the political battlefield.

Until then, the message is clear: while Israel’s economic resilience is undeniable, its political stability, judicial integrity, and security posture remain under intense global scrutiny.

The next six months may very well decide not just the fate of Israel’s credit rating—but the trajectory of its economic future.