“Hard to believe these numbers come from a country at war”: S&P Global Ratings Director on Israel's economic resilience
The agency's Rybnikov cites institutional risks and prolonged conflict as reasons for a negative credit outlook.
“If you were to present only Israel's economic data and remove the country’s name, it would be hard to believe that these numbers come from a country in this kind of security situation. It’s pretty amazing,” said Maxim Rybnikov, S&P Global Ratings Director. His remarks came at the Eli Hurvitz Conference on Economics and Society in Jerusalem.
S&P earlier this month affirmed Israel's long- and short-term foreign and local currency sovereign credit ratings at "A/A-1" and maintained a "negative" outlook. Rybnikov said Israel’s economy remains “innovative and resilient,” citing major strengths such as large foreign currency reserves, a current account surplus, and the country’s ability to raise debt even during wartime without bond yields spiking. He also highlighted the institutional strength of Israel’s economic bodies, particularly the Bank of Israel’s rapid wartime response.
However, Rybnikov warned that the biggest threats to Israel’s economy are “institutional and event risks.” S&P’s rating methodology heavily weighs these risks, he explained, focusing on budgetary discipline, checks and balances between branches of government, and respect for the rule of law. He added that despite S&P’s downgrades, “the risk premium in the capital market reflects a lower rating than what the agency has officially assigned.”
The main issue currently under review by S&P is the development of the war. “The war has lasted longer than anticipated, and we still don’t know how it will end. This presents a range of risks, especially if there is escalation,” said Rybnikov. The agency’s worst-case scenario is a direct conflict with Iran, though Rybnikov emphasized that this is not its baseline forecast. The prolonged conflict and surrounding uncertainty are the primary reasons for maintaining the negative outlook.
Rybnikov noted that the agency has repeatedly revised its debt-to-GDP forecasts upward. It now expects a 6% budget deficit in 2025 and 5% deficits in 2026–2027. In contrast, the Bank of Israel projects a 2.9% deficit in 2026.
Yali Rothenberg, the Accountant General at the Finance Ministry, later said that “the 2026 deficit should range between 3% and 4%.” Tax Authority Director Shay Aharonovich added that tax revenues are expected to reach NIS 530 billion in 2026 through improved collection. Chief Economist Dr. Shmuel Abramzon noted the difficulty of raising taxes given Israel’s narrow tax base but suggested eliminating exemptions and exploring new areas of taxation, including land.
Rybnikov’s point about the war’s economic impact was echoed by Prof. Manuel Trajtenberg, who said: “The most important economic statistic today is that Prime Minister Netanyahu stated his goal is to defeat Hamas, occupy Gaza, and remain there indefinitely. There are around 100,000 reservists now, double the assumptions when the budget was made. These aren’t projections; they’re happening now. Who is asking what the long-term implications are?”
“If Inflation Moderates, We Can Lower Rates”
Bank of Israel Governor Prof. Amir Yaron, who spoke after the central bank left its interest rate at 4.5%, said: “Forecasters expect inflation to return to target more slowly, and so do we. If that’s the case, we’ll need to keep rates higher for longer. But if inflation moderates more quickly, we can cut rates.”
Yaron emphasized that in this volatile environment, monetary policy must be data-driven. “This is a time of great uncertainty with many possible scenarios. Decisions can’t be based on a single indicator.” He also advised the government not to introduce policies that could undermine the resilience and independence of Israel’s institutions.
On fiscal policy, Yaron said his first recommendation is to reduce disincentives for labor market participation, especially among Arab women and Haredi men. “In the past, I might have started by recommending a 1–2% increase in infrastructure and education investment. But now, defense spending must rise, and we must show continued fiscal responsibility. We don’t have the fiscal room to invest more without broadening workforce participation.”
Chief Economist Abramzon also described a fiscal ‘trilemma’: balancing defense spending, civilian spending cuts, and the tax burden. He argued that better management, not just more money, is needed in the defense sector. “It’s about priorities, transparency, and organizational efficiency.”
Similar concerns were raised by Accountant General Rothenberg: “I visited a welfare facility supporting girls in crisis, where needs amounted to NIS 10,000. Then I attended a meeting in the Kirya [IDF headquarters], where the figures were in the billions. At that moment, I felt a chill. This isn’t about neglecting defense, but about managing it responsibly.”
This debate over military budgeting is unfolding with direct involvement from Prime Minister Netanyahu. The defense budget for 2025 is already projected to exceed initial plans by NIS 15–20 billion, without even accounting for potential war escalation scenarios.
