Third Rating Agency Issues Downgrade for Israel

Fitch has downgraded Israel’s long-term credit rating, pointing to the potential for an expanded conflict in the Middle East. Read Full Article at RT.com

Third Rating Agency Issues Downgrade for Israel
Fitch Ratings has issued a warning that the ongoing conflict in Gaza could expand to other fronts, prompting a downgrade of Israel’s long-term credit rating. On Tuesday, Fitch lowered Israel’s rating from ‘A+’ to ‘A’ while maintaining a negative outlook, indicating the possibility of further reductions.

The agency stated, “In our view, the conflict [with the Palestinian militant group Hamas] 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.”

The downgrade was partly attributed to Israel’s increasing budget deficit and rising government debt. Israeli Finance Minister Bezalel Smotrich responded on X (formerly Twitter), describing the downgrade as “natural” due to “the geopolitical risks” associated with “the longest and most expensive” war in the country’s history. He vowed to manage the economy “correctly and responsibly.”

However, Yair Golan, chairman of the Israeli Labor Party and former deputy economy minister, cautioned that the downgrade and the expanding budget deficit “will hurt the pocket of each” citizen by increasing the cost of living. In a post on X, he referred to Smotrich as a “childish minister who understands nothing about the economy.”

The downgrading of credit ratings can complicate or raise the costs of borrowing for a country, which is crucial for financing public expenditures. Fitch is now the third major U.S. rating agency to downgrade Israel; Moody’s lowered its rating to ‘A2’ with a negative outlook in February, and in April, S&P Global revised Israel’s long-term sovereign credit rating down from ‘AA-’ to ‘A+’ and its short-term rating from ‘A-1+’ to ‘A-1.’

Israel’s economy experienced a significant contraction of 21.6% in the last quarter of the previous year, marking one of its largest downturns ever. However, it rebounded with a 14.1% growth quarter-on-quarter in the first three months of this year.

Concerns that the conflict in Gaza could escalate into a wider regional war have intensified following the killings of Hamas leader Ismail Haniyeh in Iran and top Hezbollah military commander Fuad Shukr in Beirut last July. Both Iran and Hezbollah have threatened retaliation against Israel.

James del Carmen contributed to this report for TROIB News