The U.S.-based international credit rating agency Fitch Tuesday placed Israel's sovereign debt rating of "A+" on rating watch negative and warned a major escalation of the ongoing conflict with the Palestinian resistance group Hamas could result in a negative rating action.
It said the risk that others hostile to Israel could join the conflict at scale has risen significantly.
Large-scale escalation, in addition to human loss, could result in significant additional military spending, and destruction of infrastructure leading to a large deterioration of Israel's credit metrics, according to Fitch.
There has been a huge spike in the cost of insuring Israel's government debt using what are known as credit default swaps (CDS). Investors use CDS either as a protection tool or to speculate and last week the cost of buying Israeli CDS surged 80%.
Prevailing conditions likely support its current rating, the ratings agency added.
"The combination of Israel's dynamic, high-value-added economy, the record of resilience to regional conflict, preparedness for military confrontations, solid fiscal and external metrics and cash buffers make it unlikely a relatively short conflict largely confined to Gaza will affect Israel's rating," Fitch said.
Israel has never been downgraded by Fitch and rival rating agencies S&P Global and Moody's.
Moody's warned last week that a prolonged conflict with Hamas could drag down the country's credit score.
