Fitch: Israel on rating watch negative, war escalation to lead to rating action

Fitch has on Tuesday placed Israel’s sovereign debt rating of “A+” on rating watch negative as it warned a major escalation of the ongoing war in Gaza could lead to a negative rating action.

The ratings agency said the large-scale escalation, in addition to human loss, could result in significant additional military spending, destruction of infrastructure leading to a large deterioration of Israel’s credit metrics.

There has been a huge surge in the cost of insuring Israel’s government debt using what are known as credit default swaps (CDS). Investors use CDS either as a protection tool or to speculate and last week the cost of buying Israel CDS has spiked 80 percent.

Prevailing conditions likely support its current rating, the ratings agency further said in its statement.

Israel has never been downgraded by Fitch or rival rating agencies S&P Global and Moody’s.

Last week, Moody’s warned that a prolonged conflict could drag down its credit score.