The international rating agency Fitch Ratings has downgraded the long-term issuer default rating (IDR) of Israel in foreign currency from «А+» to «А», setting the outlook as «Negative». This decision is due to the ongoing war in Gaza, which has increased geopolitical risks and led to military operations on several fronts. The war is dealing a serious blow to Israel's finances: the budget deficit will reach 7.8% of GDP in 2024, and the national debt will remain above 70% of GDP in the medium term. Israel continues military operations in Gaza, which entails continued high defense spending and disruptions in production in the border areas, as well as in tourism and construction. In 2024, the budget deficit of the central government of Israel will reach 7.8% of GDP, due to significant expenditures on military operations. In 2025, a budget deficit of 4.6% of GDP is projected, but it could be larger if the war lasts. The Israeli government plans to implement a number of fiscal consolidation measures, including an increase in the VAT rate by 1% from 2025. However, political instability and military imperatives may hinder these plans.
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