Fitch Ratings downgraded Israel's credit rating from 'A+' to 'A' on August 12, 2024, citing the ongoing war with Hamas and escalating geopolitical risks.

This downgrade follows earlier actions by Moody's and S&P Global, which had downgraded Israel's debt rating earlier this year due to similar concerns about increased geopolitical instability.

Israel's budget deficit is projected to reach 7.8% of GDP this year, significantly up from 4.1% in 2023, largely driven by military expenditures and economic disruptions caused by the conflict.

Fitch anticipates that military spending in Israel will permanently increase by nearly 1.5% of GDP compared to pre-war levels, further exacerbating the country's budget deficit.

The downgrade reflects the financial ramifications of sustained military operations, increased geopolitical tensions, and the destruction of infrastructure.

The ongoing conflict is expected to lead to long-term economic damages, including increased military spending and disruptions to key industries such as tourism and construction.

The conflict, which escalated following a Hamas-led attack on October 7, has resulted in significant casualties, with approximately 1,200 Israeli deaths reported and nearly 39,897 deaths in Gaza.

Amidst these tensions, the US has warned that Iran may initiate significant attacks against Israel, raising fears of a broader Middle Eastern conflict.

Concerns have intensified following the killings of key Hamas and Hezbollah leaders, suggesting the Gaza conflict could escalate into a wider regional war.

Israeli Finance Minister Bezalel Smotrich acknowledged that the downgrade is a natural consequence of the ongoing war and its geopolitical implications.

Despite the downgrade, Fitch maintains that Israel's capacity to repay its debts remains strong, although the outlook remains negative.