Fitch removes Israel from ‘credit watch negative,’ affirms A+ score despite war risk
But credit ratings agency changes Israel’s outlook to negative amid risk of regional escalation, more military spending, uncertain economic prospects and fractious local politics
Sharon Wrobel is a tech reporter for The Times of Israel.
Fitch Ratings on Tuesday removed Israel from “credit rating negative” and affirmed the country’s A+ credit rating — but with a negative outlook, citing uncertainty about the duration and magnitude of the war with the Hamas terror group and its toll on the government’s debt burden.
“Geopolitical risks associated with the war in Gaza remain elevated and escalation risks remain present, but Fitch believes the risks to the credit profile have broadened and their impact may take longer to assess,” Fitch wrote, elaborating on its reasoning for removing the credit watch negative outlook.
In October, the ratings agency put Israel’s A+ credit score on rating watch negative, citing the heightened risk of a major regional escalation amid the war with Hamas, which had put the country at risk for a rating downgrade. US ratings agency Moody’s in February cut Israel’s credit rating, by one notch, from A1 to A2, and changed its outlook to negative, citing the war’s impact on government spending, as well as fiscal and political risks.
Israel is close to six months into a war in Gaza after the brutal Hamas-led onslaught on October 7, in which Palestinian terrorists killed some 1,200 people, mostly civilians, and took 253 as hostages into the Gaza Strip.
Faced with ongoing attacks by the Iran-backed Lebanon-based Hezbollah terror group and Shiite militias throughout the Middle East amid the war in Gaza, Israel has escalated its strikes on Iran-linked terror targets in Syria, killing numerous Islamic Revolutionary Guard Corps operatives, as well as members of Hezbollah and other Iranian proxy groups.
Israel has grown increasingly impatient with the daily exchanges of fire with Hezbollah on the northern front, which have escalated in recent days, and warned of the possibility of a full-fledged war.
Fitch said it changed Israel’s credit outlook to negative in light of the risk of regional escalation, higher permanent military spending, and uncertain macroeconomic prospects, which could impair Israel’s ability to bring down its growing debt pile in the future in an environment of fractious domestic politics.
“Risks of a widening of Israel’s current conflict to include large-scale military confrontations with multiple actors – over a sustained period of time – remain high,” Fitch said. “This is not our base case, but such large-scale escalation, in addition to human loss, could result in significant additional military spending, destruction of infrastructure, sustained change in consumer and investment sentiment, and thus lead to a large deterioration of Israel’s credit metrics.”
Speaking to The Times of Israel, IBI investment house chief economist Rafi Gozlan said that Fitch is likely looking for more clarity about whether the prolonged war will have long-term repercussions on the economy and its growth prospects before taking further action on Israel’s credit score.
Finance Minister Bezalel Smotrich praised Fitch’s decision to maintain the country’s credit rating as “an expression of confidence in the Israeli economy and the economic policy” that the government is leading.
“We are in the midst of a war that creates many challenges for the economy,” said Smotrich. “We are acting and will continue to take the necessary steps to minimize the risks and bring the economy back to a path of rapid growth.”
Times of Israel staff contributed to this report.
