Fitch downgrades Israel to ‘A’, negative outlook

Fitch Ratings has downgraded Israel’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from ‘A+’ to ‘A,’ with a Negative Outlook. The downgrade reflects the ongoing war in Gaza, rising geopolitical risks, and adverse effects on public finances. Fitch projects a 7.8 per cent budget deficit of GDP for 2024, with debt expected to remain above 70 per cent of GDP.

According to the Fitch data, the Negative Outlook is influenced by the potential for the Gaza attacks to extend into 2025, possibly escalating and causing further economic damage. Regional tensions, including recent hostilities involving Lebanon and Iran, compound these risks.

Israel’s budget deficit is projected to widen to 7.8 per cent of GDP in 2024 due to increased military spending and economic disruption. Revenue collections have improved, but future deficits could persist if the war continues. Fitch also expects a permanent increase in military spending by approximately 1.5 per cent of GDP.

Furthermore, Israel’s debt is anticipated to rise to 70 per cent of GDP in 2024 and 72 per cent in 2025, exceeding pre-pandemic levels. Political instability and potential conflicts could exacerbate fiscal challenges. Despite these issues, Israel’s external finances remain strong, with a significant net external creditor position and robust foreign exchange reserves.

The rating could be downgraded further if Israel’s operations in Gaza and neighbouring countries persist or worsen, while improvements in fiscal stability and conflict de-escalation could lead to an upgrade.

Attribution: Fitch Ratings report

Subediting: M. S. Salama