Fitch Downgrades Israel's Credit Rating to A
Concerns Over Public Finance Burden Due to Prolonged War
International credit rating agency Fitch Ratings has downgraded Israel's credit rating. It cited concerns over the escalating geopolitical risks due to the prolonged Gaza Strip war and the increasing burden on Israel's public finances.
On the 12th (local time), Fitch Ratings announced in a statement that it lowered Israel's credit rating from A+ to A by one notch, stating, "This downgrade reflects the ongoing war in the Gaza Strip, increased geopolitical risks, and the impact of military operations on multiple fronts." It also maintained a "negative outlook" on Israel's credit rating, noting that "the Gaza conflict could continue until 2025 and there is a risk of expansion to other fronts." This implies that Israel's credit rating could be further downgraded in the future.
Earlier, Moody's, one of the three major international credit rating agencies, also downgraded Israel's credit rating from A1 to A2 for the first time in February for similar reasons. CNN noted, "An A rating places the issuer among the safer group of bond issuers and is still considered investment grade," but added, "A lower credit rating can make it more difficult or costly for a country to borrow money."
The primary reason for the downgrade of Israel's credit rating is the fiscal impact caused by the prolonged war. Fitch Ratings projected Israel's fiscal deficit this year to reach 7.8% of its Gross Domestic Product (GDP). Last year's fiscal deficit ratio relative to GDP was 4.1%. It also forecast that Israel's national debt as a percentage of GDP will exceed 70% in the medium term, significantly surpassing the median national debt-to-GDP ratio of 55% among A-rated countries.
Israel's Finance Minister Bezalel Smotrich stated, "The downgrade due to the war and geopolitical risks is natural," adding, "We will continue to support all materials needed for the war while passing the 2025 budget that can promote growth momentum." Yali Rotenberg, Israel's State Comptroller, emphasized, "It is necessary to promptly formulate a responsible national budget based on securing fiscal reserves through a gradual reduction of the debt-to-GDP ratio."
The Gaza Strip war, which began with a surprise attack by the Palestinian armed group Hamas on October 7 last year, has prolonged, resulting in increasing casualties. According to Israeli and Gaza Strip health authorities, at least 1,200 people died in southern Israel during Hamas's initial assault last year. Since then, approximately 40,000 Palestinians have been reported killed in Israel's counterattacks.
Fitch Ratings pointed out, "In addition to human casualties, significant military spending, infrastructure destruction, and damage to economic activities and investments may continue," warning that "this could further deteriorate Israel's credit indicators." However, it added that easing conflicts in the Middle East and improving the national debt ratio through fiscal reforms could help the credit rating rebound.
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