Moody’s Warns of Potential Negative Impact on Israel’s Credit Rating from Proposed Judicial Overhaul
The Israeli government's efforts to reform the country's judiciary have caused concern among credit rating agencies, potentially impacting the nation's economy. Moody's, in particular, warned that the planned changes could “materially weaken the strength of the judiciary and as such be credit negative,” and also pose longer-term risks for Israel's economic prospects, particularly capital inflows into the high-tech sector. Fitch also warned that the judicial reform could have a negative impact on Israel's credit profile. In response to these concerns, the judicial overhaul has been suspended, which suggests that Moody's will not downgrade Israel's credit rating.[0] However, it cannot be entirely ruled out that the outlook will be cut from positive to stable as a concrete warning.
Moody's has warned that the government's proposed judicial overhaul legislation might bring negative consequences for the credit rating.[1] According to a report, Prime Minister Benjamin Netanyahu and President Isaac Herzog both tried to dissuade Moody's from downgrading Israel by stressing that for the time being, the legislation has been suspended, and there are attempts to reach a broad consensus.[2] The Finance Ministry is concerned that the protests against Israel's judicial overhaul have caused an unfavorable change in Israel's credit rating. The proximate cause analysts are citing is fears circulating on social media that the international credit ratings agency Moody's Investors Service will be coming out shortly with a negative report on Israel.[3]
Currently, Israel's rating is A+ with a positive outlook, meaning the company expects its rating to rise.[4] But Moody's has previously warned that the government's planned legal overhaul could negatively impact this rating.[4] In a joint statement, Netanyahu and Finance Minister Bezalel Smotrich confirmed that Israel's economic is “stable and solid” and “with God's help, it will remain so.”[5] They also noted that strong political disagreements lead to protests and may create temporary uncertainty.[5]
All in all, the recent events offset the positive developments that had led Moody's to assign a positive outlook in April 2022, which related to strong economic and fiscal performance and the implementation of structural reforms by the previous government.[1] Though the agency isn't expected to change Israel's A+ rating, it may well change the outlook from positive to stable, as it was raised to positive just last year, after the previous government was formed. This week will be a fateful one for Israel's economy, as Moody's is due to publish its annual credit rating of Israel, and the outcome could have significant economic consequences for the country.
0. “Shekel slides further on rating cut concerns” Globes, 13 Apr. 2023, https://en.globes.co.il/en/article-shekel-slides-further-on-ratings-cut-concerns-1001443710
1. “‘There Will Be No Damage to Israel's Economy': Netanyahu, Smotrich Downplay Gray Moody's Forecast – Israel News” Haaretz, 15 Apr. 2023, https://www.haaretz.com/israel-news/2023-04-15/ty-article/.premium/no-damage-to-israels-economy-netanyahu-smotrich-downplay-moodys-forecast/00000187-8607-dc6c-a5ff-ef57caf40000
2. “Netanyahu, Herzog reached out to Moody's before credit outlook downgrade” The Jerusalem Post, 14 Apr. 2023, https://www.jpost.com/business-and-innovation/banking-and-finance/article-739261
3. “Moody’s Swing? Shekel Weakens as Israel Braces for Credit Outlook Change – Israel News” Haaretz, 13 Apr. 2023, https://www.haaretz.com/israel-news/2023-04-13/ty-article/.premium/moodys-swing-shekel-weakens-as-israel-braces-for-credit-outlook-change/00000187-7ab1-dc6c-a5ff-7ff1f6030000
4. “Herzog, Netanyahu Lobby Moody’s on Credit Rating – Israel News” Haaretz, 13 Apr. 2023, https://www.haaretz.com/israel-news/2023-04-13/ty-article/herzog-netanyahu-lobby-moodys-on-credit-rating/00000187-7c19-d484-adef-fe9d4f4c0000
5. “Anarchists Ensure Moody's Forecast on Israel's Economy Drops from ‘Positive' to ‘Stable'” The Jewish Press – JewishPress.com, 15 Apr. 2023, https://www.jewishpress.com/news/business-economy/anarchists-ensure-israels-drop-in-moodys-rating/2023/04/15
