A ceasefire in the war in Gaza should be positive for Israel’s under-pressure credit rating, Fitch’s top sovereign rating analyst said on Thursday.
Israel’s “A” rating is currently on a downgrade warning or a “negative outlook” in rating agency-speak.
“We’ve got Israel on negative, I guess that’s something that’s really related to public finances associated with the war,” Fitch’s head of sovereign ratings James Longsdon said at a conference held by the firm.
“To the extent that [the war] can sort of stabilize, that would be positive I think there,” he said.
Israel’s rating had never been downgraded before last year, but the heavy cost of the last 15 months of fighting in both Gaza and Lebanon saw the rating cut multiple times by the major firms such as Fitch, S&P Global and Moody’s.
Analysts at Capital Economics said an effective ceasefire would have an “overwhelmingly positive” impact on Israel’s public finances.
The research firm’s Liam Peach said defense spending in the country rose to almost 9 percent of GDP last year, which is three percentage points higher than its average during the 2010s.
IAF F-16I fighter jets prepare to take off from the Ramon Airbase in southern Israel for strikes against the Houthis in Yemen, January 10, 2025. (Israel Defense Forces)
A reduction in military spending, a rebound in the economy, tax revenues and fiscal tightening measures as part of a 2025 budget worth 1.8% of GDP should narrow Israel’s budget deficit, which came in at 7% of GDP last year.
“We think the conditions are in place for a deficit closer to 4% of GDP this year and for the public debt ratio to move back onto a declining path from 2026,” Peach said.
A complex ceasefire accord between Israel and Hamas emerged on Wednesday after mediation by Qatar, Egypt and the United States and was expected to come into effect within days.
Pictures of Israeli captives hang from trees at the main gathering place of families of hostages held in the Gaza Strip since the October 7, 2023 attacks, in Tel Aviv on January 16, 2025. (Jack GUEZ / AFP)
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