International rating company Fitch has elected to leave the State of Israel's sovereign credit rating unchanged despite the security situation.
The agency reaffirmed Israel's long-term foreign-currency denominated and government debt rating of A-minus.
It also reiterated an A-plus rating for long-term shekel-denominated debt and affirmed the short-term foreign currency rating of F1.
But Fitch assigned a Negative Outlook to the sovereign ratings of the State of Israel, resolving the Rating Watch Negative action taken in May. The action reflects the escalation of political tensions this year and its impact on the slowing economy.
In its report, Fitch stressed Israel's relative financial soundness. Its main strengths include its diversified economic base, robust economic policy, its successful war on inflation and flexible exchange rate.
The ratio of public debt to GDP remains high, Fitch analysts wrote, but external public debt is reasonable at 26% of the national product.
A United States economic rally would help extract Israel from recession. But meanwhile, Israel is undergoing political and economic uncertainty, stemming from events abroad and at home. Growth is almost nil while its wiggle room is constrained by burgeoning spending on defense, the analysts note.
Fitch estimates that the general government deficit is likely to widen to more than 5% of GDP this year and to 5.5% next compared to under 3% in 2000.
The chances of regional war are remote, Fitch assesses, but there is a risk that the tensions will escalate further. Stabilization of the political and security situation coupled with the right fiscal moves would prevent Israel from being downgraded in the future, the report concludes.
S&P also recently reaffirmed Israel's credit rating and predicted stability. Moody's has yet to update its coverage.