Fitch leaves Israel's rating at A+, drops outlook to negative

Fitch Ratings affirmed Israel's credit rating at A+ on Tuesday, and Israel was removed from Rating Watch Negative while changing Israel's outlook from stable to "Negative Outlook."

A country's credit rating, or a sovereign credit rating, is a score given to a country based on how the rating company perceives the country's ability to pay back debt. This rating can give investors an idea of how risky it is to invest in the debt of a particular country (such as buying the bonds of the country). In determining the rating, companies will assess a number of factors impacting a country's economy, and anticipated future events.

Fitch projected a central government budget deficit of 3.9% for Israel in 2025, which reflects their expectation that permanent military spending will remain around 0.8% of GDP higher than in the 2023 budget. However, they expect war-related military spending to be phased out.

The company decided to remove the RWN because, while the geopolitical risk associated with the Israel-Hamas war remains "elevated," and "escalation risks remain present," according to the rating company, the risks to the credit profile have broadened, and their impacts may take longer to assess.

The Negative Outlook, which remains for Israel's rating, "reflects the combination of uncertainties around the fiscal trajectory and the war's duration and intensity, including the risk of regional escalation," said the company.

Israel's delicate political situation

Fitch also addressed Israel's ongoing delicate political situation, saying that "domestic politics remain fractious."

"The precariousness of government coalitions has hindered fiscal consolidation in the past," said the company, explaining that the emergency government will likely dissolve after the war, returning Israel to its previous government. They also noted the upcoming legislation on the haredi draft, which "could also prove divisive within the coalition."