Fitch keeps Israel’s A credit rating, but maintains a negative outlook

Fitch Ratings affirms Israel’s A credit rating, but maintains a negative outlook, warning that the country faces “rising public debt, domestic political, and governance challenges, and uncertain prospects for the conflict in Gaza.”

“The renewed hostilities 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 says. “We expect Israel will remain heavily involved in Gaza over the medium term.”

Both Fitch and rating agency Moody’s last year lowered Israel’s credit score and kept a negative outlook, warning that the country could be facing further downgrades.

Fitch assesses 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 adds.

Commenting on the country’s “fractious domestic politics,” Fitch notes 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 cautions.