In its latest review, international credit rating agency Fitch has maintained Israel’s credit rating at A with a negative outlook, citing economic resilience alongside persistent fiscal and political challenges. This decision follows a downgrade in August 2024, reflecting concerns over rising debt, security risks, and domestic governance instability.

Fitch’s statement highlighted Israel’s diversified economy, strong financial position, and robust high-tech sector as key stabilizing factors. However, the agency pointed to high public debt, ongoing security threats, and political instability as challenges to Israel’s economic outlook.

“The negative outlook reflects the increase in public debt, domestic governance and political challenges, and uncertainties surrounding the conflict in Gaza,” Fitch stated.

Fitch reported a decrease in Israel’s government deficit, which fell to 5.7% of GDP in 2025, down from 6.8% in 2024, due to increased revenues and lower defense spending. However, the agency warned that the approved 2025 budget underestimates the financial impact of the ongoing war in Gaza, forecasting a higher-than-expected deficit of 4.9% of GDP.

Looking ahead, Fitch projects Israel’s economic growth at 3% in 2025 and 3.6% in 2026, anticipating a decline in military mobilization and a boost in investor confidence as large-scale military activity diminishes. The high-tech sector, which demonstrated resilience in 2024, is expected to continue driving growth.

Fitch also expressed concerns about political and governance risks, warning that recent judicial reforms could weaken Israel’s institutional framework. “A reform of the judicial system recently approved by the Knesset, which expands political control over judicial appointments, could undermine checks and balances,” the agency noted. Growing public divisions over governance policies were also highlighted as a risk factor.

Fitch’s analysis suggests that Israel will remain significantly involved in Gaza in the medium term and anticipates renewed conflict, including air and ground operations. However, the agency expects reduced military mobilization compared to 2023, lessening the war’s economic strain.

On a broader regional scale, Fitch acknowledged that Israel’s military actions in 2024 weakened Iranian-backed militias and bolstered its strategic position. While localized security flare-ups may persist, tensions with Hezbollah are expected to remain contained, and Syria’s instability poses fewer short-term risks to Israel.

While maintaining Israel’s rating, Fitch’s continued negative outlook leaves open the possibility of a downgrade in future evaluations. Analysts speculate that, had it not been for recent security escalations and internal political disputes, Fitch might have upgraded Israel’s rating outlook from negative to stable.

This rating decision follows a physical visit by Fitch analysts to Israel, marking the first in-person assessment by a credit agency since the war began. The two other leading rating agencies, S&P and Moody’s, have yet to release their latest evaluations, with Moody’s skipping the current review round and S&P expected to announce its decision next month.

For now, Israel remains rated A by Fitch and S&P, while Moody’s places the country two notches lower at Baa1, underscoring ongoing financial and geopolitical uncertainty.

Main photo: The Fitch Rating logo at their offices in London. Reuters/Reinhard Krause