Fitch says ‘lasting’ Gaza ceasefire would lower risks of further drop in Israel’s credit rating

Fitch says a “lasting” ceasefire with the Hamas terror group in the war in Gaza would ease risks of a deterioration of Israel’s credit rating.

“A durable cessation of the war in Gaza would reduce risks captured by the negative outlook on Israel’s ‘A’ sovereign rating,” Fitch says. “Nonetheless, there is still a high degree of uncertainty over how sustainable any reduction in violence will be, and political risks in Israel could pose challenges to fiscal consolidation.”

“We believe the ceasefire agreement will face significant implementation risks, particularly revolving around whether Hamas and the Israeli authorities are seen to be upholding their commitments under the deal,” the credit rating agency cautions.

In August, Fitch downgraded Israel’s credit rating from A+ to A and assigned a negative outlook, which means a further downgrade is possible.

“While the conflict did broaden substantially after the downgrade, it did not result in significant additional Israeli military spending, or destruction of infrastructure and more sustained damage to economic activity and investment within Israel, though the human costs remained high,” Fitch states.

Citing increased military spending needs in the coming years, Fitch says it expects “Israel’s fiscal position to remain weaker than it was prior to the war in Gaza, even assuming some upside to near-term budget performance if the latest ceasefire holds.”