New York CNN —
Fitch Ratings on Monday downgraded Israel’s credit rating, citing concerns over the ongoing war with Hamas and geopolitical risks.
Fitch downgraded the country’s credit rating to “A” from “A+” and indicated it may downgrade it again in the future.
The downgrade highlights the economic toll of a war that has killed tens of thousands of people and shaken the region and the world. Fitch analysts said “the conflict in Gaza could continue until 2025” and there was a risk of it escalating.
“The downgrade to ‘A’ reflects the ongoing war in Gaza, heightened geopolitical risks and the impact of military operations on multiple fronts,” Fitch said in a statement.
According to the Gaza Health Ministry, around 40,000 Palestinians were killed and more than 90,000 injured in Israeli military actions in Gaza following Hamas’ attacks on Israel on October 7. At least 1,200 people were killed in southern Israel that day and more than 250 were abducted in Hamas-led attacks, according to Israeli officials.
Responding to Fitch’s decision, Israeli Finance Minister Bezalel Smotrich said the downgrade was “unsurprising” given the war and geopolitical risks, but added that the country’s economy remained strong.
“Israel’s economy is doing well and we are steering it correctly and responsibly,” Smotrich said in a post on X on Tuesday, adding that “economic indicators point to the strength of the economy and our high confidence in the markets.”
As ceasefire talks remain in limbo, Israeli airstrikes have killed at least 93 Palestinians in Gaza schools and mosques where displaced people have taken refuge, local officials said over the weekend. The US is also set to send $3.5 billion in military aid to Israel, CNN reported.
“In addition to the human cost,[the Gaza conflict]could result in significant additional military costs, destruction of infrastructure and more lasting damage to economic activity and investment, leading to a further deterioration of Israel’s credit metrics,” Fitch said.
A downgrade in credit ratings could make it harder or more expensive for a country to borrow money. An “A” rating is still considered investment grade, putting the country in the safer group of bond issuers.
The agency projects Israel’s budget deficit to reach 7.8 percent of gross domestic product (GDP) in 2024, up from 4.1 percent in 2023.
“We will pass a responsible budget that will continue to support all the needs of the war on every front until victory is won,” Smotrich said in a post on X.
The central government’s budget deficit is focused on military operations, mitigating economic turmoil and the costs of relocation in northern Israel as a possible new front with Lebanese militant group Hezbollah looms in the coming weeks.
Fitch also expects Israel’s debt-to-GDP ratio to remain above 70% through 2025, compared with the median A-rated ratio of 55%.
Fitch said easing the conflict and fiscal reforms to lower the debt-to-GDP ratio could help the country’s ratings recover.
In February, Moody’s Investors Service downgraded Israel’s credit rating to A2 (still investment grade) from A1. Moody’s said the main reason for the decision was “our assessment that the ongoing military conflict with Hamas, its aftermath, and broader repercussions significantly increase Israel’s political risks in the near future and weaken its executive and legislative institutions and financial strength.”
CNN’s Samantha DeRouya and Irene Nasser contributed reporting.
This story has been updated with additional information.
