Rating agency S&P Global cut on Thursday Israel's long-term ratings to "A+" from "AA-" after the confrontation with Iran heightened last weekend and amid the already elevated geopolitical risks for Israel.
"We forecast that Israel's general government deficit will widen to 8% of GDP in 2024, mostly as a result of increased defense spending," S&P Global said in its statement.
The negative outlook reflects the risk that Israel's war on Gaza and the confrontation with Hezbollah could escalate or affect Israel's economy more than the agency currently expects.
"We currently see several possible military escalation risks, including a more substantial, direct and sustained military confrontation with Iran," the statement said.
On Saturday, Iran's Islamic Revolutionary Guards Corps said it launched dozens of drones and missiles at Israel, an attack that could trigger a major escalation between the regional archenemies, with the U.S. pledging to back Israel.
Earlier this month, Fitch removed Israel from "rating watch negative" and kept its "A+" rating, but cited Israel's war on Gaza as a risk.
In February, Moody's downgraded the country's credit rating on war risks. Israeli Finance Minister Bezalel Smotrich said that the decision was not based on sound economic reasoning and was tantamount to a pessimistic "manifesto."
