Israel’s war against Hamas is having consequences for the country’s public finances. Fitch thus lowered the Hebrew state’s debt rating by one notch on Monday, from “A+” to “A”.
“The conflict in Gaza could last until 2025 and there are risks that it will spread to other fronts,” the rating agency said in a note. Israel is expected to record a budget deficit this year, Fitch estimates.
The ability to repay remains strong
“In addition to human losses,” the conflict “could result in significant additional military expenditures, destruction of infrastructure and cause lasting damage to economic activities and investments, leading to a further deterioration in Israel’s credit outlook,” the agency said.
In February, the rating agency Moody’s was the first to lower Israel’s debt rating, also by one notch, to A2, due to the conflict. The rating agency S&P Global followed suit in April, lowering Israel’s debt rating from AA- to A+, which nevertheless indicates a strong capacity to repay, in the face of “increased geopolitical risks.”
Our file on the Israeli-Palestinian conflict
According to Fitch, a continuation of the conflict next year would force Israel to maintain its high military spending and further disrupt the tourism, construction and manufacturing industries in the border areas.