Fitch Ratings assesses Gaza ceasefire will reduce pressure on Israel’s credit rating

James Longsdon, the head of sovereign ratings for one of the major global credit rating agencies, Fitch Ratings, assessed on Thursday that the Gaza ceasefire will likely reduce the current pressure on Israel's credit rating. 

"We've got Israel on negative, I guess that's something that's really related to public finances associated with the war," Longsdon stated at a conference. "To the extent that [the war] can sort of stabilize, that would be positive I think there," the top credit rating analyst continued. 

Prior to the war, which was triggered by the Hamas Oct. 7 attack last year, the Israeli economy was characterized by a stable and even positive credit rating. However, the multi-front war against Iran and its terrorist proxies Hamas, Hezbollah and the Houthis put pressure on the Israeli economy. This prompted leading global credit agencies to downgrade Israel’s credit rating. 

In August last year, Fitch downgraded Israel’s credit rating from “A-plus” to “A” due to the financial pressures caused by the war. 

“The downgrade to 'A' reflects the impact of the continuation of the war in Gaza, heightened geopolitical risks, and military operations on multiple fronts. Public finances have been hit and we project a budget deficit of 7.8% of GDP in 2024 and debt to remain above to 70% of GDP in the medium term. In addition, World Bank Governance Indicators are likely to deteriorate, weighing on Israel's credit profile,” Fitch assessed in its August report. 

At the time, Fitch predicted that the Gaza war could continue well into 2025 and therefore assessed a "negative outlook" for the Israeli economy. 

“In our view, the conflict in Gaza could last well into 2025, and there are risks of it broadening to other fronts,” the credit agency warned. 

However, if the recently signed ceasefire holds, it could potentially reverse Israel’s currently negative credit rating. 

Capital Economics, a global economic consultancy agency, welcomed the ceasefire and believed that it would have an “overwhelmingly positive” impact on the Jewish state’s financial situation. 

"We think the conditions are in place for a deficit closer to 4% of GDP this year and for the public debt ratio to move back onto a declining path from 2026," assessed the company’s senior economist Liam Peach. 

The Gaza war, which has so far lasted for over 15 months, has already become the most expensive war in Israel’s modern history. The Bank of Israel Governor Amir Yaron assessed last summer that the Gaza war would likely cost the Israeli economy $67 billion in military and civilian costs during the period 2023 to 2025. By comparison, Israel’s annual Gross Domestic Product (GDP) reached over 500 billion dollars in 2024. 

Israeli economists are likely also welcoming the Gaza ceasefire. In August 2024, leading Israeli economists warned that the protracted Gaza war could have negative impact on the Israeli economy’s long-term viability and stability. 

“The economy right now is under huge uncertainty, and it’s related to the security situation – how long the war will go on, what the intensity will be and the question of whether there will be further escalation,” the former Israel Central Bank chief Karnit Flug warned at the time. 

“The public will have a hard time accepting it if the government does not show that the severity of the situation forces them to give up some of the things that are dear to them,” she added.