Israel's fiscal deficit rises 7.8%, credit rating downgrades, shekel falls 1.7%

Israel's fiscal deficit rises 7.8%, credit rating downgrades, shekel falls 1.7%

Israel's fiscal deficit rose to 7.8% due to the prolonged Hamas war and its credit rating was downgraded, causing the shekel to plunge 1.7% on the 12th.
Fitch Ratings downgraded Israel's credit rating from 'A-plus' to 'A', saying, "Public finances have been hit, and we expect the fiscal deficit to reach 7.8% of GDP in 2024 and debt to remain above 70% of GDP in the medium term," and maintained a negative outlook, indicating the possibility of further downgrades.
The Fitch report said, "If military spending continues to increase and economic uncertainty persists, national debt will continue to increase beyond 2025," and "In our view, the conflict in Gaza could continue until 2025, with the risk of escalation to other fronts." The Israeli shekel fell as much as 1.7% against the dollar on the day the credit rating was downgraded, and the Tel Aviv stock market closed more than 1% lower.
“Elevated tensions between Israel, Iran and their allies could mean significant additional military spending, infrastructure destruction, and damage to economic activity and investment,” the Fitch report said, outlining a long-term war outlook. “We expect the Israeli government to permanently increase its military spending by close to 1.5% of GDP compared to pre-war levels as it strengthens its border defenses.”
The Israeli military continued its offensive near the southern city of Khan Yunis on Tuesday, despite a ceasefire in the Gaza Strip.
A Palestinian medical team told Reuters that at least 18 people were killed and several others wounded in an Israeli attack on Khan Yunis.
Later, five people were killed in Israeli airstrikes in the Gaza suburb of Zaytun and two in Rafah, near the Egyptian border, Palestinian medical teams said. As the fighting continued, Hamas was negative about the Egyptian-Qatari mediation talks scheduled for the 16th, a Hamas source told Reuters, saying, “If Hamas accepts a viable plan, that is, a positive response from Israel to the proposals that Israel has accepted, the situation could change, but so far Hamas believes that Netanyahu is not serious about negotiations.” The Israeli newspaper Haaretz reported on the 13th that, “The summit scheduled to be held in Doha is being talked about as a ‘last chance’ summit,” and that “representatives of the mediators and senior officials of the Israeli Defense Ministry believe that Hamas’ threat to boycott is still part of their negotiating tactics and that the summit will take place as scheduled. The United States seems to be putting a slightly different nuanced bridging proposal on the table and trying to dictate the acceptance of both sides with a ‘take it or leave it’ attitude. If they encounter resistance, the Americans are likely to place a lot of responsibility on Prime Minister Benjamin Netanyahu for the first time.”