Credit rating agency Fitch has maintained Israel's sovereign credit rating at A with a negative outlook on March 27.

The agency released its results, dashing expectations among Israeli treasury officials that it would upgrade the outlook to stable before the current conflict with Iran and Lebanon's Hezbollah began.

Fitch said it had held back an already-prepared positive rating announcement following the outbreak of Operation Lion's Roar against Iran and the escalation on the northern front with Hezbollah, which forced Israel to breach its state budget frameworks to cover exceptional defence spending.

The agency cited "expectations of a continued rise in public debt, which is already significantly above the median of A-rated countries, as well as risks of extreme war-related scenarios materialising that could weaken Israel's growth potential and its fiscal trajectory."

Fitch also pointed to "a fractured domestic political environment that could delay fiscal consolidation measures."

The agency forecast Israel's government deficit would widen to 5.7% of GDP in 2026, exceeding the government's own 4.9% deficit framework due to military spending running above official projections.

Fitch warned that without post-election fiscal consolidation measures, Israel's debt-to-GDP ratio would continue rising, reaching 72.5% in 2027, significantly above the 56% median for A-rated sovereigns. The agency said debt would continue to climb gradually beyond 2028 under current conditions.

The Israeli government is expected to pass its state budget next week based on the 4.9% deficit framework.