Fitch Affirms Israel at A with Negative Outlook After Netanyahu Wins 53 Seats
Key Facts
Fitch kept Israel’s sovereign rating at A with a negative outlook, saying political tensions and the risk of a government without a majority are consistent with the current rating. The agency’s position followed the election held on 27 October, whose final results gave Benjamin Netanyahu’s bloc 53 seats. Fitch did not announce a fresh downgrade, keeping its assessment unchanged amid continued political uncertainty. The agency said, "Israel’s credit rating at A remains on a negative outlook." The result puts government formation at the center of the political and fiscal risks monitored by markets.
Final results showed Netanyahu’s bloc lost its parliamentary majority, winning 53 seats, compared with 48 for the main opposition bloc and 19 for the Arab parties. The figure of 53 had also appeared in preliminary projections when about 86% of the votes had been counted, before the final result was confirmed. The Knesset has 120 members, meaning a governing coalition needs at least 61 seats. Parties now face negotiations to assemble that majority, while the election results alone do not guarantee a new government. If attempts to form a government fail, Israel could face a new election early next year, according to the Associated Press.
The next political steps include the new Knesset being sworn in on 10 November, according to the expected date reported by the Associated Press. After it convenes, the Eisenkot bloc could join the Arab parties to elect a Knesset speaker, the report said. This represents a possible parliamentary path during negotiations over post-election arrangements, while the outcome of talks to form a government remains unresolved. Fitch had linked political instability risks to the possibility of a government without a majority and also cited the scenario of the Knesset being dissolved and an early election being held. That scenario remains a possibility in the reported assessment, not an event that has already occurred.
Uncertainty quickly showed up in trading after the election: on 28 October, the TA-90 index fell 4.47% and the TA-35 index declined 1.81%. The shekel fell about 2% against the dollar that day, according to The National. The moves followed the release of preliminary results, as investors watched the course of government formation. These figures reflect declines in stocks and the currency in a specific session and do not indicate their direction in subsequent periods. Alongside the election result, markets were therefore facing questions about the stability of the next government and its expected fiscal decisions.
The political issue comes amid fiscal pressures previously flagged by the Bank of Israel in its forecasts issued in March 2026. The central bank estimated the government deficit at 5.3% of GDP in 2026 and forecast debt rising to 70.5% of GDP, compared with an actual 68.5% in 2025. It linked its higher deficit and debt estimates for 2026 compared with its January forecasts to the high cost of Operation “Lion’s Roar” and the decision to increase the defense budget by 32 billion shekels. It also expected the government debt-to-GDP ratio to continue rising at a limited pace, while Fitch said the debt trajectory remains one of the main drivers of the negative outlook. This puts public finance management among the issues facing the next government, alongside building a stable coalition.
In the same March forecasts, the Bank of Israel estimated GDP growth of 3.8% in 2026 and 5.5% in 2027, warning that continued fighting would constrain economic activity. The International Monetary Fund, in an assessment cited in a July 2026 report by The National, projected growth of 3.5% in 2026 and 4.4% in 2027, assuming the regional ceasefire largely holds. The forecasts differ according to their assumptions and the periods in which they were prepared, but they place the economic outlook in a broader context than the election results alone. The new Knesset is due to be sworn in on 10 November, while difficulties forming a government could lead to an early election early next year. Negotiations to secure a majority of 61 seats and the next government’s fiscal steps will remain in focus in the period ahead.