The global credit rating agency Fitch announced on Tuesday that Israel’s credit rating has been placed under “Rating Watch Negative.” This decision comes in response to a shift in the perception of risks associated with the ongoing war with Hamas. Fitch’s decision to monitor the situation closely reflects concerns about the potential impact of the conflict on Israel’s fiscal health and overall creditworthiness.

The move to place Israel’s credit rating under “Rating Watch Negative” indicates that Fitch intends to keep a vigilant eye on security developments in the region over the next six months. In the event of a significant deterioration in the security situation, Fitch may take a negative rating action. However, currently, Israel’s credit rating remains at an A+ level.

Fitch is particularly worried about the potential for a large-scale military conflict involving multiple actors over an extended period, which could lead to a deterioration in Israel’s fiscal data. While the credit rating agency acknowledges that this scenario is not the most likely outcome, it underscores that if it were to materialize, it might result in increased government spending, decreased state revenues, a negative impact on consumer and investor sentiment, and a decline in Israel’s credit indicators.

However, Fitch’s announcement also highlights certain factors that provide some stability to Israel’s creditworthiness. Israel’s dynamic economy, characterized by high added value, and its preparedness for military conflict, along with a history of resilience in such situations, are seen as positive attributes. Furthermore, the country boasts strong fiscal indicators, robust external accounts, and substantial liquidity cushions. Fitch believes that a relatively short conflict, mainly limited to the Gaza Strip, is unlikely to have a substantial impact on Israel’s credit rating.

The agency will continue to closely monitor the situation and make informed decisions based on the evolving circumstances in the region over the coming months.

As reported earlier by Isranomics, Moody’s has postponed the release of Israel’s credit rating notice due to the current conflict with Hamas.

Main photo: The Fitch Ratings logo at their offices in London, UK, REUTERS/Reinhard Krause