Fitch Affirms Israel's A Rating with a Negative Outlook

Fitch Ratings has reaffirmed the long-term foreign-currency rating of Israel at 'A', maintaining a negative outlook as the nation navigates significant fiscal and geopolitical challenges. The ratings agency pointed to rising public debt and the persistent risks stemming from regional conflicts as primary factors that could impact the country's long-term financial stability. According to the latest forecast, military expenditure is expected to remain high through 2026, staying well above levels recorded prior to the current hostilities. This sustained spending is driven by intensifying involvement in Lebanon and ongoing operations elsewhere. Consequently, the central government's cash budget deficit is anticipated to widen during the current year before potentially narrowing in 2027 as defense costs begin to subside. The agency noted that while the security situation remains volatile, the nation's military response has provided some level of stability to its credit profile. > Israels recent and ongoing military operations have somewhat diminished geopolitical risks to the ratings and demonstrated a highly effective defensive capability. Despite these strengths, the outlook remains cautious due to the lack of a clear timeline for the cessation of hostilities. Fitch warned that the duration and scope of the current conflict remains uncertain, which continues to weigh on the fiscal projections for the Mediterranean nation.