Why does Moody’s rate France above Israel? The economic gap deserves scrutiny – opinion
Credit ratings carry practical consequences for governments, businesses, and taxpayers. A four-notch difference deserves an explanation grounded in evidence that investors and the public can examine.
Moody's decision to keep France's credit rating significantly higher than Israel's has sparked a discussion about the factors the agency considers when evaluating each country's economic performance. Both nations have investment-grade ratings, but the four-notch difference highlights that Moody's perceives lending to France as substantially safer.
When assessing a government's ability to repay its debt, sovereign credit ratings factor in various elements beyond just growth and debt figures. These include war, political stability, institutions, and access to financing. The disparity between France and Israel's economies warrants a closer look.
Israel's economy faced a significant downgrade from A1 to A2 in February 2024, following the Hamas-led October 7, 2023 attack that triggered the Gaza war. The rating was further reduced to Baa1 in September 2024. Despite this, Israeli economy has shown considerable resilience, as acknowledged by the International Monetary Fund (IMF).
In contrast, France has grappled with weak growth, substantial budget deficits, and political resistance to reforms aimed at improving its public finances. This has led to protests and unrest, placing additional pressure on its government. The question arises whether the ratings gap adequately reflects these competing realities.
When comparing economic output per person, Israel's nominal GDP per capita is projected to reach approximately $72,400 in 2026, while France's is expected to be around $51,400. The IMF projects a higher economic growth rate for Israel (4.5%) compared to France (0.4%). However, Israel's public debt-to-GDP ratio is lower at approximately 68.6%, compared to France's debt reaching nearly 120% of its annual output.
Moody's downgraded Israel in February 2024, citing the impact of the Hamas-led October 7, 2023 attack that triggered the war in Gaza. The country's rapid growth after the conflict, however, demonstrates its ability to recover and strengthen its tax base. France, on the other hand, has faced weak growth, high budget deficits (exceeding 5% of GDP), and political challenges in implementing reforms to improve its financial situation.
Government bond yields also provide insight into investors' confidence in each country's creditworthiness. France's 10-year government bonds yield 5.05%, while Israel's yield ranges between 4.06% and 4.18%. However, this comparison should consider the different currencies and inflation expectations affecting the yields.
In summary, while France's economic challenges and political hurdles warrant scrutiny, Israel's lower debt-to-GDP ratio and resilience in the face of war may contribute to the perceived safety of its credit. The ratings gap reflects the complex interplay of growth, debt, fiscal policies, and geopolitical factors that influence each nation's creditworthiness.
Written by urgent.news from Jerusalem Post's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
