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Israel credit outlook lowered, budget to be amended amid Hamas war

Israel’s credit rating was in trouble before the war in Gaza due to the government’s controversial judicial reform plans, and the war is affecting the country's fiscal situation.

Smotrich
Israel's far-right Finance Minister Bezalel Smotrich delivers a speech during a rally in the outpost of Eviatar, south of Nablus in the occupied West Bank, on April 10, 2023. — GIL COHEN-MAGEN/AFP via Getty Images

A major credit rating agency downgraded Israel’s outlook and a government minister said the current budget will need to be amended this week as the war with Hamas continues to affect Israel’s economic situation.

S&P Global Ratings affirmed Israel’s AA- rating for foreign and local currency on Tuesday, indicating a “very strong capacity” to meet its financial commitments. However, the New York-based agency revised Israel’s outlook from stable to negative, according to a press release, meaning that S&P could downgrade Israel’s credit rating in the future.

The firm cited risks related to the Gaza war, specifically that the conflict “could spread more widely with a more pronounced impact on the economy and security situation in Israel.” Relatedly, S&P Global projected the Israeli economy to contract by 5% in the fourth quarter of 2023 due to security-related disruptions to businesses, a decline in foreign tourism and a “broader confidence shock," before rebounding in early 2024. 

S&P further predicted that increased government spending in relation to the war will increase the government deficit to 5.3% of GDP into 2024, up from the previous prediction of 2.3%, according to the release.

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