Rating agencies reaffirm Israel’s rating but stress that any improvement depends on fiscal consolidation and political stability

ISRAEL - In Brief 19 Oct 2025 by Sani Ziv

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Moody’s reaffirms Israel’s rating and upgrades growth outlook Moody’s reaffirmed Israel’s Baa1 rating with a negative outlook on October 16, 2025, describing the Gaza ceasefire as credit-positive but emphasizing that risks remain elevated. The agency raised its growth forecasts to 2.5% for 2025 and 4.5% for 2026, saying that consumption, investment, and reconstruction will drive recovery. The fiscal deficit is projected at about 5% of GDP in 2025 and 4% in 2026, with the debt ratio stabilizing near 70%. Moody’s stressed that any rating improvement will require the ceasefire to hold, defense spending to decline, and stability of the political system. The tone was cautiously optimistic, emphasizing Israel’s economic resilience but declaring that fiscal consolidation and political stability remain prerequisites for any outlook upgrade. Fitch also affirmed Israel’s A+ rating with a Negative outlook in a peer review released on the same day, October 16, 2025. Although the review was technical and did not include new forecasts, it nonetheless carries economic significance, signaling that Fitch does not intend to downgrade Israel’s rating in the near term. The agency’s overall assessment continued to show confidence in Israel’s credit fundamentals despite ongoing geopolitical risks. Our take:  Both Moody’s and Fitch delivered a consistent message, namely that Israel’s credit profile is stabilizing but not yet improving. The ceasefire provides an opportunity to shift policy toward growth and fiscal constraints. In our view, an outlook upgrade could materialize in the first half of 2026 if the government passes the 2026 budget with a credible deficit target of 3% or less. Addit...