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May 8 (Reuters) - Standard & Poor's kept Israel's sovereign rating at A/A-1 with a stable outlook on Friday, noting that de-escalation of military activity supported by ceasefire agreements would reduce immediate security risks to Israel.

"The projections reflect our assumption that potential military hostilities will remain sporadic and limited, even if tensions between Israel, Iran and its proxies persist and the overall regional security situation remains fragile," the agency said in a statement.

In March, Fitch Ratings maintained Israel’s credit rating, but warned that rising public debt and ongoing military operations were casting a shadow over its outlook.

Concerns about Israel’s financial situation have grown as defense spending has sharply increased amid escalating hostilities with Iran and Lebanon, adding to the pressures already caused by the war with the Palestinian Islamic Resistance Movement (Hamas).

The Israeli Finance Ministry said in April that a war with Iran would cost Israel 35 billion shekels ($12.06 billion) in budget expenditures, adding that the amount was already included in the 2026 budget.

A third round of talks between Israel and Lebanon is scheduled to take place in Washington this week, raising cautious hopes for a ceasefire and economic stability, even as continued strikes underscore how fragile and reversible those expectations are.

Standard & Poor's said, "A de-escalation of military tensions will ease supply-side constraints and push Israel's real GDP growth to nearly 6 percent in 2027," while warning that the geopolitical risks facing the country will remain high, despite the lull.