Fitch Inc. demoted Israel’s sovereign credit rating on Monday, with the prominent statistical firm citing concerns over the ongoing war with Hamas and the threat of prolonged hostilities in the region.
The reduction from an ‘A+’ position to an ‘A’ was accompanied by a negative financial outlook on the country, possibly signaling future downward pressure on the Jewish state’s government bonds.
“The downgrade to ‘A’ reflects the impact of the continuation of the war in Gaza, heightened geopolitical risks, and military operations on multiple fronts,” Fitch said in a report while fearing that “the conflict in Gaza could last well into 2025, and there are risks of it broadening to other fronts.”
Amid renewed threats by the Islamic Republic and its proxy groups to retaliate against Jerusalem’s purported assassination of terror leader Ismail Haniyeh, Fitch expressed apprehension that increased incursions “could result in significant additional military spending, destruction of infrastructure, and more sustained damage to economic activity and investment, leading to a further deterioration of Israel's credit metrics.”
Fitch expects the budget deficit in Israel to be at 7.8 percent of GDP in 2024 due to large outlays in defense expenditures and the country’s national debt to remain above 70 percent of GDP before rising even further in 2025.
The American-based company did list some positive attributes for the embattled nation’s finances, noting that The Bank of Israel increased its foreign exchange reserves in 2024 by $9 billion while predicting forthcoming stability regarding current account data.
Israeli Prime Minister Benjamin Netanyahu responded to the appraisal, releasing a statement declaring "Israel's economy is strong and is functioning very well. The rating downgrade is a result of Israel dealing with a multi-front war forced upon it."
Finance Minister Bezalel Smotrich downplayed the summary, calling the adjustment “natural” considering the current circumstances and assuring investors his office is managing the economy “correctly and responsibly.”
Although an ‘A’ rating is still considered investment grade, Fitch’s actions may make borrowing money more difficult or expensive for Israel’s lawmakers.
