Israel’s economic credibility is teetering on the edge of a precipice, according to a blunt warning delivered by Maxim Rybnikov, Director at S&P Global Ratings, during a high-profile appearance at the Eli Hurvitz Conference on Economy and Society.

In a virtual address that sent shockwaves through financial and policy circles, Rybnikov cautioned that Israel’s national credit rating is under direct threat, with escalating geopolitical instability and a troubling erosion of institutional strength acting as a toxic double punch.

“By far, the biggest constraint for the rating today is really the institutional risk and also event risks,” Rybnikov declared. “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.”

S&P Global Ratings director Maxim Rybnikov warns that weakening institutions and security risks threaten Israel’s credit rating. Speaking at the Eli Hurvitz conference, he said Israel’s institutional strength is a key factor, and further downgrades are possible if tensions… pic.twitter.com/Gbhlnl8BLR

— ILTV Israel News (@ILTVNews) May 27, 2025

Downgrades Already Delivered—And More May Follow

Earlier this month, S&P reaffirmed Israel’s A/A-1 credit rating, but the caveat was chilling: the negative outlook remains, leaving the door wide open for future downgrades. That means borrowing costs for the Israeli government, private sector, and households may climb even higher in an already volatile economic environment.

This marks a continuation of a downward trend. S&P downgraded Israel twice in 2023, citing surging tensions following the October 7 Hamas invasion and the war in Gaza. Those downgrades reflected not only battlefield chaos but also perceived instability in Israel’s democratic institutions amid political infighting, controversial judicial reforms, and fractured civil society.

“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,” Rybnikov explained. “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....we could see the influence on multiple credit factors across the board,”

"Israel's largest strength by far is the innovative and resilient Israeli economy." Maxim Rybnikov,
Director and Lead Analyst, EMEA Sovereign & Public Finance Ratings, S&P Global Ratings #HurvitzConference2025 pic.twitter.com/78QbYNFtAF

— Israel Democracy Institute (@IDIisrael) May 27, 2025

Institutional Erosion: A Silent Economic Killer

S&P’s methodology weighs institutional resilience heavily—looking at the interplay between government branches, independence of the judiciary, transparency of economic data, and the social contract binding a nation together. Rybnikov noted that these areas, long seen as Israel’s strengths, are now flashing red warning lights.

The politicization of key institutions, controversial legislative pushes, and mass civil unrest in 2023 have all weakened the confidence of global investors, with implications that go beyond headline risk.

Hope on the Horizon — But Only if Escalation Eases

Despite the grim tone, S&P did leave a narrow window of optimism. A shift in the regional security calculus, particularly the de-escalation of tensions with Iran, could prompt S&P to revise Israel’s outlook from negative to stable.

“If we see clear signs that the likelihood of broad regional war is receding, then we would consider stabilizing the rating,” Rybnikov said.

S&P ANALYST RYBNIKOV SAYS KEY STRENGTHS FOR ISRAEL ARE INNOVATIVE AND RESILIENT ECONOMY, STRONG EXTERNAL POSITION AND FLEXIBLE AND EFFECTIVE MONETARY POLICY

— PiQ (@PiQSuite) May 27, 2025

Conclusion: Israel at a Crossroads

With war still raging in Gaza, tensions boiling in the north with Hezbollah, and Iran’s proxies pushing closer to the brink, Israel finds itself at a critical juncture. As Rybnikov made clear, economic resilience and national security are now deeply intertwined.

Unless Israel can restore confidence in its democratic institutions and stave off a regional explosion, its financial future may suffer long-term damage — with implications not only for the country’s credit rating, but for the economic security of its citizens and the stability of the region at large.