International credit rating company Fitch Ratings today released an update to the credit profile of the State of Israel, following the ceasefire agreement with Lebanon. “Sustained de-escalation of the armed conflict between Israel and Hezbollah – potentially following the 60-day ceasefire that began on November 27 – could help limit pressure on Israel’s public finance indicators,” says Fitch, but adds: “In our view, the ceasefire is likely to be fragile and the prospects for an imminent ceasefire in Gaza remain low.”
In August this year, Fitch downgraded Israel’s sovereign rating from A+ to A, with a negative outlook. Fitch’s rating is similar to that of S&P, and one notch above that of Moody’s, which rates Israel Baa1.
“The ceasefire with Hezbollah, if sustained, would reduce fiscal risks, but developments in Gaza and with Iran will continue to play an important role in determining Israel’s fiscal and economic trajectory « , says Fitch’s update. « We believe the war in Gaza will continue until 2025, although at varying levels of intensity. This involves continued high spending on immediate military needs and disruption of production in border areas, as well as tourism and construction. »
As for the budget deficit, Fitch states: « Fitch currently forecasts 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 August review. The escalation of the conflict with Hezbollah was not part of our baseline assumptions in August, but the associated costs were partly offset by strong results in the second half. 2024, and we believe some spending will be recognized in the 2025 budget. The 2025 budget bill targets a deficit of 4.3% of GDP, but our baseline scenario includes more military spending than the government assumes.
« Fitch forecasts that debt/GDP will increase by almost 72% in 2025, up from a recent low of 60.5% in 2022, in line with our August assumption. This would be above the median for sovereigns in the category “A”, 58%.
According to the latest forecasts from the Bank of Israel’s research department, the budget deficit will reach 7.2% of GDP in 2024 and 4.9% in 2025. Bank of Israel researchers expect the public debt reaches around 68% of GDP in 2024, and around 69% of GDP in 2025.
According to Fitch, “Israel’s medium-term fiscal outlook remains subject to a high degree of uncertainty. There is a risk that the budget deficit will remain above a level capable of stabilizing the debt in 2026 and beyond, depending on whether military spending is maintained. » at recent high levels; coalition priorities; and the shape of Israel’s economic recovery.
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« The ceasefire, if maintained, will remove a key potential factor in escalating conflict between Israel and Iran, a close ally of Hezbollah. However, the risk of a major escalation in regional violence involving Iran remains important, and the attitude of the new Trump administration towards Iran is likely to have an impact on Israel and its regional policy Fitch has already stated that a significant escalation of the conflict. regional could have repercussions on the credit of a number of Middle Eastern sovereigns and could affect global oil prices,” the update concludes.
In its own rating, Moody’s also cautiously welcomes the ceasefire, but says Israel has yet to present a credible plan for the Gaza Strip that would ensure long-term stability, and that the risk of an escalation of hostilities with Iran remains. Moody’s also says that while external risk may have diminished, domestic political risks remain, as the government pursues controversial policies that Moody’s says are exacerbating tensions in the country, and unpopular measures such as the exemption from conscription for the ultra-Orthodox.
Published by Globes, Israel Business News – fr.globes.co.il – November 28, 2024.
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