Fitch Confirms Israel's Rating at 'A' with Negative Outlook

SadaNews Economy - On Friday, the credit rating agency "Fitch" confirmed Israel's long-term credit rating in foreign currency at "A" with a negative outlook, indicating that rising levels of public debt and ongoing risks associated with the war could weaken the country's financial trajectory.

Fitch predicted that military spending would remain high in 2027, significantly exceeding pre-war levels, amid escalating Israeli intervention in Lebanon and ongoing military operations.

The agency anticipated that the budget deficit of the central government would widen this year, before beginning to shrink in 2027 as military spending declines, according to "Reuters."

The agency stated: "Recent and ongoing Israeli military operations have somewhat mitigated the geopolitical risks threatening credit ratings," but at the same time warned that the duration and scope of the current conflict remain unclear.

The negative outlook reflects expectations of continued rising public debt, which already exceeds the average for the "A" rating category, as well as the risks associated with the war that could weaken growth prospects and the financial trajectory in Israel.

The divided local political environment also reflects challenges to the fiscal adjustment process. The confirmation of the credit rating balances a diverse, resilient, and high-value-added economy with strong external financing against a high public debt-to-GDP ratio, still high security risks, and a record of unstable governments that have hindered policymaking.

Fitch also expects the public debt to rise to 71.4% of GDP in 2026.

In the absence of fiscal adjustment measures after the elections, debt is expected to increase slightly to 72.5% in 2027, well above the average for the "A" category, which is 56%, and will continue to rise gradually thereafter.

Israel's budget remains strong, with a net creditor position of 62% at the end of 2025.

Foreign exchange reserves are also high, covering 14 months of current external payments.

Israel recorded a score of "5" in political stability and rights, and "5+" in institutional quality and anti-corruption controls.