Shafaq News/ Israel's credit ratinghas been lowered from an A+ to an A by Fitch Ratings agency due to worseninggeopolitical risks stemming from the ongoing war in Gaza.
Since Hamas attacked Israel onOctober 7, Israel has killed over 39,790 Palestinians in Gaza, mostly women and Children, and injured around 92,002 others, according to the Hamas-runhealth ministry. Many more are feared buried under rubble, as much of theenclave has been destroyed and most of its 2.3 million residents displaced.
Fitch Ratings maintained a “Negative”outlook, “The downgrade to ‘A’ reflects the impact of the continuation of thewar in Gaza, heightened geopolitical risks and military operations on multiplefronts,” the agency said in a press release.
Clarifying this outlook, FitchRatings explained, “In our view, the conflict in Gaza could last well into 2025and there are risks of it broadening to other fronts. In addition to humanlosses, it could result in significant additional military spending,destruction of infrastructure and more sustained damage to economic activityand investment, leading to a further deterioration of Israel’s credit metrics.”
However, Finance Minister BezalelSmotrich described Fitch’s downgrade of Israel’s credit rating as “natural”given the ongoing conflict with Hamas in Gaza, while asserting that thecountry’s economy remains robust.
“Israel is in the midst of anexistential war – the longest and most expensive in its history,” said Smotrichin a statement. “The war is being waged on several fronts and has been going onfor almost a year.”
“The downgrade amid the war and thegeopolitical risks it creates is natural,” he added.
The shekel fell up to 1.7% againstthe dollar, and Tel Aviv stocks dropped over 1% on Monday, as investors worriedabout a broader Middle East conflict following the Israeli assassinations ofHamas leader Ismail Haniyeh in Tehran and Hezbollah commander Fouad Shukr inBeirut, with Iran and Hezbollah vowing retaliation.
In this context, the agency expectedIsrael to permanently boost military spending by about 1.5% of GDP tostrengthen border defenses.
“Public finances have been hit andwe project a budget deficit of 7.8% of GDP in 2024 and debt to remain above to70% of GDP in the medium term. In addition, World Bank Governance Indicatorsare likely to deteriorate, weighing on Israel’s credit profile,” Fitch Ratings affirmed.
In April, the agency removed Israelfrom "credit rating negative" and affirmed its A+ credit rating, butwith a “negative” outlook, due to uncertainty about the duration and impact ofthe conflict with Hamas and its effect on the government's debt burden.