S&P Downgrades Israel's Credit Rating to A+: Government Deficit Expected to Rise

S&P, a leading international credit rating agency, has announced the downgrading of Israel's credit rating from AA- to A+, with a "negative" outlook. The decision comes amidst escalating tensions between Israel and Iran and the geopolitical challenges the country has been facing since the onset of the conflict.

S&P cites the increasing possibility of a more significant and prolonged military conflict with Iran as a key factor behind the downgrade. The agency expresses concerns about the potential impact of such escalation on Israel's economy and fiscal stability.

Government Deficit Expected to Rise

The agency predicts a rise in the government deficit for 2024 to 8%, primarily attributed to heightened defense expenses stemming from the ongoing conflict. This surpasses the initial budget projection of 6.6%, raising doubts about its feasibility amidst the substantial costs of war.

Negative Forecast Reflects Uncertainty

S&P's decision to maintain a "negative" outlook reflects the ongoing uncertainty surrounding the Israel-Hamas conflict and the broader implications for the country's economy. The agency underscores the risk of further escalation and its potential ramifications on Israel's economic landscape.

S&P's move follows its earlier decision to revise Israel's credit rating forecast from "stable" to "negative" in the wake of heightened geopolitical risks triggered by the Hamas attack in October 2023. The agency emphasizes its commitment to monitoring Israel's economic growth, fiscal condition, and balance of payments amid evolving security challenges.

While S&P and Moody's have downgraded Israel's credit rating, Fitch, the third-largest rating agency globally, has refrained from lowering the rating but revised the forecast to "negative." However, Fitch warns that further economic deterioration could prompt a downgrade in the future, highlighting ongoing concerns about Israel's economic stability amidst geopolitical tensions.