Fitch keeps Israel’s A credit rating, but warns renewed Gaza war may go on for months
Agency says credit outlook remains negative, meaning further rating cut is possible, citing ‘uncertain prospects’ for the fighting and fractious domestic politics, but also notes war gains
Sharon Wrobel is a tech reporter for The Times of Israel
Fitch Ratings affirmed Israel’s A credit rating on Monday, but maintained a negative outlook, as the rating agency warned that the country faces “rising public debt, domestic political and governance challenges and uncertain prospects for the conflict in Gaza.”
“The renewed hostilities [in Gaza] could involve intense air and ground operations and could last several months, but we believe fewer reserves will be mobilized than in 2023, reducing the impact on the labor force, the economy and public finances,” Fitch said. “We expect Israel will remain heavily involved in Gaza over the medium term.”
On March 18, Israel renewed intensive military operations throughout Gaza amid an ongoing impasse in the hostage negotiations with Hamas, shattering a fragile two-month ceasefire with the terror group. In January, Fitch raised prospects that a ceasefire in the war in Gaza should be positive for Israel’s under-pressure credit rating.
All three rating agencies — Fitch, Moody’s and S&P Global — lowered Israel’s credit score last year, citing concern over the ballooning military and civilian costs of the intense and prolonged fighting in both Gaza and Lebanon. The rating agencies maintained a negative outlook, meaning that the country could be facing further downgrades. A lower rating raises credit costs for the government, businesses and households.
In its report, Fitch assessed that the “weakening of Iranian proxies across the Middle East has strengthened Israel’s position and reduced associated risks to its credit profile… although sporadic flare-ups are possible and tensions with Iran will continue.”
“Israeli military action in Iran in 2024 brought some strategic gains and highlighted an understanding of Iran’s deterrence capabilities,” the rating agency added.
Commenting on the country’s “fractious domestic politics,” Fitch noted that the “end of the ceasefire in Gaza enabled the reestablishment of the coalition formed after the November 2022 elections, alleviating immediate political risks by allowing the passing of 2025 budget before the March 31 deadline.”
“The next elections are due in October 2026, but the current coalition could fall earlier, with some key issues remaining contentious, including the conscription of ultra-orthodox Jews,” Fitch cautioned.
In addition to the domestic political turmoil, the moves by the current government risk undermining the strengths of Israel’s institutional bodies.
“A judicial reform recently approved by the Knesset that expands political control over judicial appointments and moves to dismiss Israel’s attorney general could weaken checks and balances,” Fitch said. “There appears to be a growing divide in the population on some issues.”
A majority of Israelis say that they do not trust the government of Prime Minister Benjamin Netanyahu, according to a poll aired Friday on Channel 12, with most of the public also opposed to policy on the return of the hostages and the 2025 budget that passed last week.
On Saturday, fears of a crumbling Israeli democracy brought tens of thousands of people once again to rally in Tel Aviv and throughout Israel, alongside others who reject the notion of a renewed war in Gaza without a hostage deal first.
Fitch’s report comes after Moody’s Investors Service warned last week of Israel’s “very high political risks that have weakened economic and fiscal strength.” Moody’s kept Israel’s country rating intact and maintained a negative outlook, which the rating agency said reflects its view that “downside risks” on Israel’s credit score persist.
The Times of Israel Community.