Moody’s points to possible risks for Israel after judicial reform

Financial ratings entity Moody’s recently discussed potential risks facing Israel after the enactment of a contentious judicial reform.

The agency maintained Israel’s A1 rating, having downgraded from the “positive” category earlier this year.

The downgrade was attributed to governmental changes and the polarizing effects of the reform, which appears to diminish judicial independence while expanding executive powers.

The reform was passed by a government-majority Parliament amidst widespread protests and criticism.

Several civil society groups have challenged the law in the Supreme Court, arguing it breaches constitutional norms by abolishing the doctrine of reasonableness, which empowered the Supreme Court to overturn decisions it deemed unreasonable.

Moody’s suggested that these developments could increase the chances of a constitutional crisis and ongoing political and societal friction, potentially affecting Israel’s economic and security situations.

However, Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich defended their policy, stating that Israel’s robust economy would persevere.

Morgan Stanley also recently adjusted Israel’s credit outlook, pointing out that the nation’s economic course could unnerve investors and result in further depreciation of the shekel.

A report by Start-Up Nation Central indicated that the judicial reform could discourage foreign investment, with 68% of Israeli start-ups already taking preventative measures, such as moving operations abroad or making staff cuts.

Despite a 6.5% economic growth in 2022, largely thanks to the high-tech industry, this sector has also joined protests against the reform.

Moody’s further noted a sharp decline in venture capital investments in this area.