Fitch Ratings agency announced on Tuesday the removal of the negative watch on long-term Israeli sovereign debt and affirmed its rating at “A+” with a negative outlook.
The agency’s decision, as stated in its statement today, comes despite the ongoing Israeli war on the Gaza Strip and the continuing economic and financial risks surrounding Tel Aviv.
Fitch mentioned that the geopolitical risks associated with the war are still high, and “we believe that the risks to the credit profile have widened, and their impact may take longer to assess, so we have removed the negative watch from its rating.”
In the first month of the war on Gaza, Fitch placed Israel’s sovereign debt rating on negative watch and warned that any significant escalation of the conflict could lead to a downgrade in the rating.
The agency added, “Negative expectations remain as long as the war continues, including the risk of regional escalation… We expect a near-term jump in the debt-to-GDP ratio and continued military spending growth.”
It also stated, “The risks of the current conflict in Israel expanding remain, including large-scale military confrontations with multiple actors, over an extended period of time.”
On several occasions, Israel has announced its intention to enter the city of Rafah in southern Gaza, “and we expect the war to continue in the second quarter of 2024 with the risk of continued intensive operations thereafter,” according to the agency.
The war on Gaza and the associated economic disruptions contributed to a 6.6% decline in revenues in 2023, while expenditure increased by 12.5% driven by measures to support the affected and military spending.
Fitch expects the debt-to-GDP ratio to rise to 65.7% in 2024 and 67% in 2025.
