Credit ratings agency Fitch downgraded Israel’s credit rating to “A” from “A-plus”, citing worsening geopolitical risks as the conflict in Gaza drags on, and kept the rating outlook negative, meaning a further downgrade is possible. Israel’s onslaught in Gaza has cost thousands of lives and unfolded into a humanitarian crisis, Reuters reports.

Fears that the conflict in Gaza could turn into a broader Middle East war have escalated after the killing of Hamas leader Ismail Haniyeh in Iran and top Hezbollah military commander Fuad Shukr in Beirut.

The ratings agency expects the Israeli government to permanently increase military spending by close to 1.5 per cent of GDP versus pre-conflict levels as the country strengthens its border defenses.

“Public finances have been hit and we project a budget deficit of 7.8pc of GDP in 2024 and debt to remain above to 70pc of GDP in the medium term,” Fitch said. It forecast the country’s debt will remain on an upward trend beyond 2025 if higher military spending and economic uncertainties continue.