Fitch lowers Israel’s credit rating to A amid ongoing Gaza conflict

Shafaq News/ Israel's credit rating has been lowered from an A+ to an A by Fitch Ratings agency due to worsening geopolitical risks stemming from the ongoing war in Gaza.

Since Hamas attacked Israel on October 7, Israel has killed over 39,790 Palestinians in Gaza, mostly women and Children, and injured around 92,002 others, according to the Hamas-run health ministry. Many more are feared buried under rubble, as much of the enclave has been destroyed and most of its 2.3 million residents displaced.

Fitch Ratings maintained a “Negative” outlook, “The downgrade to ‘A’ reflects the impact of the continuation of the war in Gaza, heightened geopolitical risks and military operations on multiple fronts,” the agency said in a press release.

Clarifying this outlook, Fitch Ratings explained, “In our view, the conflict in Gaza could last well into 2025 and there are risks of it broadening to other fronts. In addition to human losses, it could result in significant additional military spending, destruction of infrastructure and more sustained damage to economic activity and investment, leading to a further deterioration of Israel’s credit metrics.”

However, Finance Minister Bezalel Smotrich described Fitch’s downgrade of Israel’s credit rating as “natural” given the ongoing conflict with Hamas in Gaza, while asserting that the country’s economy remains robust.

“Israel is in the midst of an existential war – the longest and most expensive in its history,” said Smotrich in a statement. “The war is being waged on several fronts and has been going on for almost a year.”

“The downgrade amid the war and the geopolitical risks it creates is natural,” he added.

The shekel fell up to 1.7% against the dollar, and Tel Aviv stocks dropped over 1% on Monday, as investors worried about a broader Middle East conflict following the Israeli assassinations of Hamas leader Ismail Haniyeh in Tehran and Hezbollah commander Fouad Shukr in Beirut, with Iran and Hezbollah vowing retaliation.

In this context, the agency expected Israel to permanently boost military spending by about 1.5% of GDP to strengthen border defenses.

“Public finances have been hit and we project a budget deficit of 7.8% of GDP in 2024 and debt to remain above to 70% of GDP in the medium term. In addition, World Bank Governance Indicators are likely to deteriorate, weighing on Israel’s credit profile,” Fitch Ratings affirmed.

In April, the agency removed Israel from "credit rating negative" and affirmed its A+ credit rating, but with a “negative” outlook, due to uncertainty about the duration and impact of the conflict with Hamas and its effect on the government's debt burden.