Fitch Ratings has downgraded Israel’s credit rating from ‘A-plus’ to ‘A’ due to escalating geopolitical risks associated with the ongoing conflict in Gaza. The agency has also maintained a negative outlook, indicating the potential for further downgrades if the situation deteriorates.
The downgrade follows intense fighting that began on October 7 last year after a cross-border attack by Hamas, leading to significant casualties and a severe humanitarian crisis. Fitch projects that the conflict could extend into 2025 and possibly expand to other regions, further destabilizing the area.
In response, Israeli Finance Minister Bezalel Smotrich acknowledged the impact of the conflict on the rating and highlighted recent high-profile attacks, including the killing of Hamas leader Ismail Haniyeh in Iran and Hezbollah commander Fuad Shukr in Beirut, which have exacerbated fears of a broader regional conflict.
The rising tensions have affected Israel’s financial markets, with the shekel falling by up to 1.7% against the dollar and the Tel Aviv stock market dropping over 1%. Fitch notes that increased military spending could strain Israel’s economy, projecting a budget deficit of 7.8% of GDP for 2024 and anticipating that national debt will remain above 70% of GDP in the medium term. If military expenditures remain high and economic uncertainties persist, debt levels could continue to rise beyond 2025.
