Fitch keeps Israel’s ‘A’ credit rating, negative outlook amid rise in public debt, war-related risks

Fitch Ratings affirms Israel’s “A” credit rating, but maintains a negative outlook, as the rating agency warns that the country faces “continued rise in public debt,” and “war-related tail risks” that could weaken its growth prospects.

The rating agency says it maintains Israel’s credit rating, citing “a diversified, resilient and high value-added economy and strong external finances against a high public debt/GDP ratio, still high security risks, and a record of unstable governments that have hindered policymaking.”

“Israel’s recent and ongoing military operations have somewhat diminished geopolitical risks to the ratings and demonstrated a highly effective defensive capability,” says Fitch. “The duration and scope of the war are uncertain, but our baseline assumes the current war will likely greatly diminish Iran’s threat to Israel.”

Fitch maintains a negative outlook on Israel’s rating, meaning that the country could be facing further downgrades. A lower rating raises credit costs for the government, businesses, and households.

The negative outlook “reflects a fractious domestic political environment that may hinder fiscal consolidation,” Fitch cautions.

“A broadening of the conflict, including large-scale military operations in Lebanon that would involve a high level of reservist mobilization, represents the main risk to our fiscal projections,” Fitch says. “We expect Israel will scale down military expenditure after the end of the wars in Iran and Lebanon, while remaining above pre-war levels.”