S&P Ratings has Upgrades Israel’s Outlook to Stable Following the Gaza Ceasefire

S&P Global Ratings has affirmed Israel’s sovereign credit rating at A and raised its outlook from “negative” to “stable,” citing reduced security risks following the ceasefire in the war in Gaza. The shift was widely expected by markets.

According to the agency, the ceasefire has lowered the probability of a broader regional conflict and eased pressure on the economy, labor markets, and public finances. While security conditions remain “fragile,” S&P wrote that the likelihood of a large-scale, direct military confrontation has diminished for now.

Risks and Scenarios

S&P notes that downside risks remain linked to:

• A renewed security escalation, and

• Further deterioration in the government’s fiscal stance beyond projections.

Conversely, upside potential lies in:

• A sustained reduction in geopolitical risk, and

• Stronger-than-expected recovery in macroeconomic indicators.

Strengths and Limitations Economic

S&P reaffirmed that Israel’s rating is underpinned by a resilient economy, supported by:

• A strong external sector with substantial foreign currency inflows,

• A flexible monetary framework, and

• Deep access to global capital markets.

However, the rating remains constrained by security volatility and the fiscal pressure associated with prolonged defense spending.

Growth and Fiscal Outlook

The agency projects that as wartime supply disruptions ease, Israel’s economy could grow by around 5% in 2026.
Geopolitical risks, however, are expected to remain elevated, and defense expenditures will stay high, though lower than 2024 levels.

S&P expects:

• Budget deficit below 6% of GDP in 2025

• Deficit below 5% in 2026

• Government debt to stabilize around 67% of GDP, rising gradually to ~69.6% by 2027, before edging down again in 2028.

The agency noted that tax revenues have exceeded expectations, and part of its projections assume:

• The closing of the Wiz corporate tax event,

• And that recently enacted tax increases will remain in place.

S&P emphasized that Israel’s debt composition remains favorable:

• 80% of government debt is denominated in shekels

• Only 8% is short-term

This, along with strong foreign investor confidence and record-high foreign currency reserves, continues to support financial stability.

Category Score Improvement

The only rating-factor improvement was recorded in “Fiscal Flexibility and Performance,” where Israel’s score improved from 5 to 4 on S&P’s 1–6 scale (where 1 is strongest).