Fitch's downgrade affects Israel's rating amid the war in Gaza.

The recent decision by the rating agency Fitch to downgrade Israel's credit rating to "A" from "A+" has generated significant repercussions in the country's economic and political landscape. This move is set against the backdrop of the prolonged war in Gaza, which has not only left a trail of devastation in humanitarian terms but has also begun to adversely affect the assessment of the nation's economic strength. Israeli Finance Minister Bezalel Smotrich reacted to Fitch's downgrade by stating that it was a "natural" decision, considering that the country is in the midst of an "existential war," the longest and most costly in its history. This comment illustrates the Israeli government's perception of the situation and its commitment to continue supporting military efforts. Smotrich emphasized that the war is being fought on multiple fronts and has already lasted nearly a year, resulting in a considerable increase in public spending allocated to defense. For its part, Prime Minister Benjamin Netanyahu's office rushed to assure that the Israeli economy remains strong and functioning well, despite the challenges posed by the conflict. This response reflects a communication strategy aimed at mitigating the impact of the credit rating downgrade; however, Fitch's projections paint a concerning picture for the country's economic future. Fitch analysts have warned that Israel's budget deficit could reach an alarming 7.8% of Gross Domestic Product (GDP) in 2024, with debt remaining above 70% of GDP in the medium term. This situation is not only unsustainable but could also create a domino effect on the World Bank's governance indicators, further deteriorating Israel's credit profile. Amid this scenario, Smotrich has committed to ensuring that the government will approve a responsible budget for 2025 that continues to support war needs. This promise suggests that the Israeli administration is willing to prioritize military spending at the expense of other sectors, which could have long-term consequences for the country's economic stability. Fitch's downgrade is not an isolated event. For several months, other rating agencies, such as Moody's and S&P Global, have also lowered their assessments of the Israeli economy, reflecting a shift in the perception of risk associated with the geopolitical situation. Moody's, for example, downgraded Israel's credit rating for the first time in its history due to the conflict in Gaza, establishing a negative outlook that underscores the economic fragility amid the war. Similarly, S&P Global has indicated that the Israeli government's deficit could widen to 8% of GDP in 2024, primarily due to increased defense spending. The war has not only been devastating in terms of human lives but is also deeply affecting the government's ability to maintain a healthy fiscal balance. The situation in Gaza, with nearly 40,000 deaths, mostly civilians, resonates not only in humanitarian terms but also in economic ones. The international perception of Israel as a safe place to invest or do business could be affected, which in turn could limit future economic growth. The government's promise that the credit rating will be raised once a victory is achieved in the war is, for now, a statement of intent that does not necessarily align with the economic realities projected by experts. In a context where the war seems to have no clear end, economic uncertainty and geopolitical risk become a constant concern for Israeli citizens and businesses. Israel's economic future will largely depend not only on the resolution of the conflict in Gaza but also on the government's ability to manage public spending effectively and maintain investor confidence in an increasingly volatile environment. The decisions made in the coming months will be crucial in defining the country's economic direction and its long-term stability.