Full coverage· Politics· Updated 16:08

Credit Rater Fitch Predicts Repeat Elections in Israel

The international credit rating agency Fitch Ratings warned on Friday that Israel's recent election results could lead to prolonged political instability, potentially delaying the 2027 state budget and increasing public debt. The agency's central scenario predicts that efforts to form a government will fail, leading to the dissolution of the Knesset in early January and repeat elections in early April 2027. Fitch expressed doubt that any political leader will succeed in establishing a stable coalition with a 61-seat majority.

3 newsrooms · 2 languages · since 13:53

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What happened

01Fitch Ratings warned that Israel faces prolonged political instability and potential repeat elections in April 2027.
02The agency predicts the Knesset could dissolve in early January if coalition negotiations fail to produce a stable government.
03Fitch doubts any political leader can secure the 61 Knesset seats required to form a stable coalition.
04Prime Minister Benjamin Netanyahu met with Minister Itamar Ben-Gvir to discuss preserving their right-wing government.
05Opposition leader Gadi Eisenkot is exploring coalition options with other party leaders in case Netanyahu fails to form a government.
06Operating without an approved 2027 budget would force Israel to limit monthly spending to 2026 levels of approximately NIS 699 billion.
07Fitch forecasts a rise in Israel's debt-to-GDP ratio, which has already reached approximately 70% due to war spending.
08Israel's credit rating remains at 'A' with a negative outlook, signaling the potential for a future downgrade.

Initially, the task of forming a government is expected to fall to Prime Minister Benjamin Netanyahu, who will have 28 days with a possible two-week extension. If Netanyahu fails, the mandate could pass to opposition leader Gadi Eisenkot. Behind the scenes, political negotiations are already underway. The Otzma Yehudit party announced that its chairman, Minister of National Security Itamar Ben-Gvir, met with Netanyahu to discuss preserving the right-wing government, while Eisenkot is exploring coalition options with other party leaders. Fitch also noted the possibility of a broad coalition between Netanyahu's and Eisenkot's blocs without ultra-Orthodox parties, though it does not consider this the primary scenario.

If no government is established and a new budget is not approved, Israel will operate under a continuing budget based on the 2026 spending cap of approximately NIS 699 billion. While this would temporarily limit monthly expenditures and reduce the deficit, Fitch projects that Israel's debt-to-GDP ratio, which has risen to around 70% due to war spending, will continue to rise. This outlook differs from the more optimistic projections of the Bank of Israel and the Ministry of Finance. Israel's credit rating currently remains at 'A' with a negative outlook.

Summarized by baba from the reports of 3 newsrooms. Updated 21:01

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