International rating agency Moody’s published an unusual update for investors yesterday in which it surveys in depth the Israeli government’s proposals for overhauling the judiciary, and warns that, if they are implemented in full, they will significantly weaken the system of justice in Israel and will therefore have negative consequences for Israel’s credit rating. The Moody’s update also states that the changes will have long-term consequences for the Israeli economy, and particularly for investment in its technology sector.
On the foreign exchange market this morning, the shekel has weakened against the US dollar to NIS 3.6208/$.
The report states that the constitutional reform is liable to weaken Israel’s institutional strength, pointing out, for example, that the "override clause" whereby the Knesset will be able to re-enact legislation struck down by the Supreme Court by a majority of 61 of its 120 members will make legislation in effect immune from judicial review. The authors of the report point out that up to now Israel’s institutions have been considered a supporting factor in the country’s credit rating. They receive an score of a1, similar to that of the UK, and better than some EU countries, such as Italy and Poland. The report states that the reforms, if passed in full, are liable to create pressure to lower the score.
In April 2022, Moody’s gave Israel a "Positive" rating outlook, in the light of its success in emerging from the Covid-19 crisis, and impressive fiscal discipline, but the current report states that these factors might not be sufficient to offset the weakening of the country’s institutions. It adds that the long-term consequences of the reform could be severe for investment in the technology sector, which is critical for Israel’s economy. If this happens, the report says, it could ultimately change the agency’s perception of Israel’s economic strength.
Published by Globes, Israel business news - en.globes.co.il - on March 8, 2023.
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