Ratings agency S&P Global on Thursday cut Israel's long-term ratings to A-plus from AA-minus after the confrontation with Iran heightened last weekend and amidst 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 the 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 following Israel's April 1 attack on an Iranian consulate in Syria.
The US has pledged to back Israel.
S&P's downgrade was issued shortly before the strike in Iran, and almost three months after Moody's, another major US credit agency, downgraded Israel's rating due to the "ongoing military conflict" in the besieged territory.
Earlier this month, Fitch removed Israel from "rating watch negative" and kept its A-plus rating, but cited Israel's war in Gaza as a risk.
In February, Moody's downgraded the country's credit rating on war risks. Far-right Israeli Finance Minister Bezalel Smotrich said that decision was not based on sound economic reasoning and was tantamount to a pessimistic "manifesto".
S&P typically issues sovereign credit ratings on scheduled dates, but does break with that practice if events merit.
S&P's will issue another ratings review for the country on the date it was originally scheduled to do so, on May 10.
No Iranian official directly acknowledged the possibility that Israel attacked, and the Israeli forces did not respond to a request for comment.
However, tensions have been high since the Saturday assault on Israel amid its war in the Gaza Strip and its own strikes targeting Iran in Syria .
