JNS
"Israel's economy is strong and will continue to be so," said Finance Minister Bezalel Smotrich.
Fitch Ratings on Tuesday removed Israel from Rating Watch Negative (RWN) and affirmed the country's credit rating at 'A+' with a Negative Outlook.
Referring to the RWN removal, Fitch said that while geopolitical risks tied to the Gaza war "remain elevated and escalation risks remain present," they have broadened "and their impact may take longer to assess.
Fitch describes the Ratings Watch Negative characterization as event-driven, signaling a very high likelihood for a downgrade in a six-month period. A Negative Outlook has a longer-term horizon and indicates a likely rating change over a one-to-two-year period.
The Negative Outlook remains in place for Israel due to uncertainties regarding the country's "fiscal trajectory and the war's duration and intensity, including the risk of regional escalation," Fitch said.
The rating agency said it expected a "near-term jump in debt/GDP [the debt-to-GDP ratio]" and "persistently higher military spending in the context of fractious domestic politics and uncertain macroeconomic prospects, which could limit Israel's ability to bring down debt in the future."
It also pointed to risks of a widening conflict, including with Hezbollah and other Iranian proxies, which could lead to large-scale loss of human life, destruction of infrastructure and a sharp upturn in military spending for retaining the Negative Outlook.
"Israel's economy is strong and will continue to be so," tweeted Finance Minister Bezalel Smotrich in response to the news.
"Keeping the rating at A+ during war is an expression of confidence in the Israeli economy and the economic policy we are leading. We are in the midst of a war that was forced upon us and naturally the war creates many challenges for the economy," he said.
Fitch projected a central government budget deficit of 3.9% for 2025, with war-related military spending phased out but permanent military spending to remain about 0.8% of GDP higher than in the 2023 state budget.
