Fitch Ratings downgraded Israel’s credit rating from “A+” to “A” on Monday, citing worsening geopolitical risks as the conflict in Gaza continues. The credit rating agency also maintained a negative outlook, indicating the possibility of a further downgrade.
The ongoing Israeli military action in Gaza has killed thousands and led to a humanitarian crisis. The latest war in the Palestinian territory erupted after a Hamas attack on southern Israel on October 7.
In a statement, Fitch said, “We believe the conflict in Gaza could continue into 2025, and there are risks of it spreading to other fronts.”
However, Israeli Finance Minister Bezalel Smotrich commented on X (formerly Twitter), saying, “A downgrade following the outbreak of war and resulting geopolitical risks is natural.”
Concerns are escalating that the conflict in Gaza could expand into a broader war in the Middle East following the assassination of Ismail Haniyeh, the head of Hamas’s political office in Iran, and the killing of Hezbollah’s senior military leader Fouad Shukr in Beirut.
The Israeli shekel fell by as much as 1.7% against the dollar on Monday, and stocks closed down over one percent in Tel Aviv amid investor fears of a potential attack on Israel.
Fitch also noted that increased tensions between Israel and Iran and its allies might lead to significant additional military spending, infrastructure destruction, and economic and investment damage.
The rating agency expects the Israeli government to permanently increase military spending by about 1.5% of GDP compared to pre-war levels as the country strengthens its border defenses.
Fitch remarked that “public finances have been impacted, and we expect a budget deficit of 7.8% of GDP in 2024, with debt remaining above 70% of GDP in the medium term.”
The agency anticipates the country’s debt to continue rising post-2025 if the increase in military expenditure and economic uncertainty persist.
