As predicted by the Ministry of Finance, the international credit rating agency Fitch announced today (Tuesday) that Israel's credit rating, which stands at A+, will be placed under "negative rating" due to a change in the perception of geopolitical risk caused by the "Iron Swords" war.
The significance of the announcement is that the company intends to constantly monitor security developments in the region, so that over the next six months, in the event of a significant deterioration in the security situation, it may carry out a negative rating operation. Alternatively, if the deterioration does not materialize, the "negative follow-up" will be removed.
Direct hit on a house in Sderot, today // Photo: Oren Ben Hakon
Due to Fitch's announcement, it is not inconceivable that other rating agencies will act in a similar manner in the future. As reported in Israel Hayom this week, senior Finance Ministry officials warned that rating agencies could put Israel under "close surveillance." At this stage, Israel's credit rating remains at A+.
According to the Treasury's announcement, Fitch's announcement reflects its concern that the expansion of the current conflict, insofar as it includes a large-scale military confrontation with a number of other "actors" over an ongoing period, could cause a deterioration in fiscal data. The company emphasizes that this is not a central scenario, but if it materializes, it is liable to lead to a prolonged increase in government expenditure, a decline in state revenues, lead to a negative impact on consumer and investor sentiment, and a deterioration in Israel's credit indices.
An IDF tank on the Lebanese border, on Saturday, photo: AP.
The company believes that the risk of the conflict expanding has increased significantly in light of the frequent exchanges of fire on the Lebanese border and in light of statements by senior Iranian and Hezbollah officials. The company clarifies that the price of expanding the conflict for Iran and Hezbollah will be very high, following warnings from Israel and the United States.
The company also emphasized that given the dynamic economy with high added value, the country's preparedness for military confrontation, and a history of resilience to such conflicts, combined with good fiscal indicators, strong external accounts, and high liquidity buffers, it is unlikely that a relatively short conflict, limited mainly to the Gaza Strip, will affect Israel's ranking.
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