Posted on 04/02/24
| News Source: Arutz-7
The international credit rating agency Fitch announced on Tuesday the reaffirmation of the State of Israel's credit rating at an A+ level, the removal of the "Negative Watch" and an update of the rating outlook from "Stable" to "Negative."
According to the company, "Geopolitical risks associated with the war in Gaza remain elevated and escalation risks remain present, but Fitch believes the risks to the credit profile have broadened and their impact may take longer to assess, so has removed the RWN on Israel's 'A+' rating."
Regarding the update of the rating outlook, the company mentions that "The Negative Outlook reflects the combination of uncertainties around the fiscal trajectory and the war's duration and intensity, including the risk of regional escalation. We expect a near-term jump in debt/GDP 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."
"Risks of a widening of Israel's current conflict to include large-scale military confrontations with multiple actors - over a sustained period of time - remain high. This could include Hezbollah, other regional militant groups and Iran. This is not our base case, but such large-scale escalation, in addition to human loss, could result in significant additional military spending, destruction of infrastructure, sustained change in consumer and investment sentiment, and thus lead to a large deterioration of Israel's credit metrics," Fitch wrote.
"Israel has announced its intention to enter the city of Rafah in the south of Gaza, and we expect the war to continue in 2Q24 with a risk of intense operations continuing beyond. This implies continued high spending on immediate military needs, and disruptions to production in the border areas and in tourism and construction. Israel has demobilised most of its reservists, reducing the impact on the workforce."
It was also noted that, "Continued operations in Gaza also keep the risk of a widening of the conflict at an elevated level. The Israeli army and Hezbollah have exchanged fire repeatedly and neither side has chosen to escalate to an all-out war, while an escalation remains possible. A widening of the conflict could include other regional militant groups and Iran."
Fitch estimates that Israel will end 2023 with a deficit of 6.8% GDP and reach a deficit of 3.9% in 2025. Additionally, the debt-to-GDP ratio, as determined by the company, is expected to rise but still be lower than in 2021.