(Reuters) -Credit ratings agency Moody’s affirmed Israel’s long-term local and foreign-currency ratings at "Baa1" on Monday and said the direct military conflict with Iran would further strain public finances.

The rating reflects Israel’s weakened fiscal position driven by elevated geopolitical risks since October 2023. Moody’s expects debt-to-GDP ratio to peak at around 75% over the medium term as a result of higher defense spending and weaker economic growth.

Before the start of the military conflict with Iran, the ratings agency had projected a 70% peak.

"Renewed conflict would also threaten Israel’s economic strength through potential material damage to infrastructure and the weakening of security conditions that could weigh on investment and overall economic activity," it said.

In May, S&P Global had affirmed Israel’s "A/A-1" ratings but cautioned that prolonged or intensified conflict could hurt economic and fiscal performance.

Fitch Ratings said last month that a spillover from the Israel-Iran conflict appears to be within a range that can be absorbed by Israel’s "A"/negative rating level.

Moody’s also maintained Israel’s outlook at "negative".