Moody’s Raises Israel’s Credit Outlook to ‘Stable,’ Citing Reduced Geopolitical Risk

Moody’s Investors Service announced over the weekend that it has revised Israel’s credit rating outlook from “negative” to “stable,” while leaving the sovereign rating unchanged at Baa1. The move reflects a reduced risk of further near-term deterioration rather than renewed confidence in the government’s economic or fiscal policy.

Israel’s current rating remains two notches below its level prior to the judicial overhaul crisis and the outbreak of the war, and Moody’s made clear that a return to the 2022 rating is not on the horizon.

Focus on Risk Stabilization, Not Economic Strength

According to the report, the change in outlook signals that the scenario of an additional downgrade is no longer the most likely outcome. However, Moody’s emphasized that this does not indicate a recovery in Israel’s economic strength.

“Israel’s exposure to geopolitical risk has decreased substantially from very high levels, thus reducing the risk of further weakening in the credit rating,” the agency said, while adding that “the environment remains fragile” and that geopolitical risks continue to weigh on any potential upgrade.

Security Developments Drive the Outlook Shift

Moody’s attributed the outlook revision primarily to security and geopolitical developments, rather than to improvements in economic fundamentals. The agency cited the end of the direct confrontation with Iran in June 2025, along with fragile ceasefires in Gaza and Lebanon, as key factors reducing the likelihood of a short-term economic shock.

From Moody’s perspective, the probability of another extreme event that would severely impact Israel’s economy or public finances in the near term has declined.

Fiscal Damage Already Embedded

Despite the improved outlook, Moody’s stressed that significant economic damage has already been absorbed. The report notes that Israel’s debt-to-GDP ratio has stabilized at around 68%, a sharp departure from pre-war forecasts that projected a decline toward 50%.

In the agency’s assessment, this deterioration is structural rather than temporary. “Geopolitical risk remains high and has left a long-term negative impact on the government’s fiscal position and the economy,” the report stated.

Institutional Stability Remains a Key Condition

Moody’s also underscored that the stable outlook is contingent on continued institutional resilience, with particular emphasis on the judicial system. The agency warned that renewed institutional weakening—including further damage to judicial independence—could reintroduce downward pressure on Israel’s credit rating.

The explicit inclusion of this warning signals that political and institutional developments remain material factors in future rating decisions.

Relief, Not Recovery

Moody’s conclusion is measured: Israel has not emerged from its crisis, but the risk of immediate further deterioration has eased. The outlook revision represents a momentary stabilization—a pause in the decline rather than a return to strength.

As the agency’s assessment makes clear, the improvement is best understood as a sign of reduced short-term risk, not as an endorsement of economic policy or a signal of imminent recovery.