Today, the international credit rating company Fitch issued an update on the credit file of the State of Israel, following the ceasefire agreement with Lebanon. “A permanent de-escalation of the armed conflict between Israel and Hezbollah – perhaps as a result of the 60-day ceasefire that began on November 27 – could help limit the pressure on Israel’s fiscal metrics,” Fitch says, but adds: “In and from the perspective of “In our view, the ceasefire is likely to be fragile, and the prospects for an imminent ceasefire in Gaza remain weak.”
In August this year, Fitch downgraded Israel’s sovereign rating from A+ to A, with a negative outlook. Fitch’s rating is similar to Standard & Poor’s, and one notch higher than Moody’s, which rates Israel Baa1.
“The ceasefire with Hezbollah, if it continues, would reduce financial risks, but developments in Gaza and with Iran will continue to play an important role in determining Israel’s financial and economic path,” Fitch’s report stated. “We believe that the war in Gaza will continue until 2025, albeit at different levels of intensity. This means continued high spending on urgent military needs, disruption of production in the border areas, as well as tourism and construction.”
As for the fiscal deficit, Fitch says: “Fitch currently expects a budget deficit of around 7.8% of GDP in 2024 and 5.2% in 2025, compared to our forecasts of 7.8% and 4.6%, respectively, at the time of our month-on-month review.” August”. Escalation of the conflict with Hezbollah was not part of our underlying assumptions in August, but the associated costs were partially offset by strong revenue performance in the second half of the year. 2024, and we believe some spending will be recognized under the 2025 budget. The draft 2025 budget bill aims for a deficit of 4.3% of GDP, but our baseline includes more military spending than the government assumes.
“Fitch expects debt to GDP to rise by approximately 72% in 2025 from a recent low of 60.5% in 2022, in line with our assumptions in August. This would be above average for sovereigns in the category.” “A”, which is 58%. “.
The latest forecasts of the Research Department at the Bank of Israel indicate that the fiscal deficit will reach 7.2% of GDP in 2024 and 4.9% in 2025. Bank of Israel researchers expect government debt to rise to about 68% of GDP in 2024. About 69% of GDP in 2025.
According to Fitch, “Israel’s medium-term fiscal prospects remain subject to a high degree of uncertainty. There is a risk that the budget deficit will remain above the debt stability level in 2026 and beyond, depending on whether spending on the military is sustainable.” . At the final high levels of the coalition; The shape of economic recovery in Israel.
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“The ceasefire, if it holds, will remove a major potential driver of increased conflict between Israel and Iran, a close ally of Hezbollah. However, the risk of a major escalation in regional violence involving Iran remains significant, and the new government’s position is likely to be one of Trump’s administration towards Iran has an impact on Israel and its regional policy, and Fitch has previously reported that any major escalation of the regional conflict may have credit repercussions on a number of sovereign countries in the Middle East, and may affect global oil prices. The update ends.
In its own note, Moody’s also expressed a cautious welcome to the ceasefire, but said that Israel had not yet presented a credible plan for the Gaza Strip that would ensure long-term stability, and that the risk of escalation of hostilities with Iran remained. Moody’s also states that although external risks have diminished, domestic political risks remain, as the government presses ahead with controversial policies that Moody’s sees as exacerbating tensions in the country, and unpopular moves such as exempting the ultra-Orthodox from Compulsory conscription.
Published by Globes, Israel Business News – en.globes.co.il – on November 28, 2024.
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