Credit rating agency Moody’s changed its outlook on Israel’s credit ratings from positive to stable in a move that may impact future investments in the country’s economy.
However, it maintained the A1 status of the country’s foreign- and local-currency senior unsecured and long-term issuer ratings.
The efforts of Prime Minister Netanyahu and President Herzog to convince the investment service that Israel’s economy is still strong, although the intense disagreements over judicial changes came before Moody’s assessment that was released on Friday.
However, Moody’s opted to draw attention to the link between the ill-fated measures and a faltering economy.
The credit rating agency announced that “the change of outlook to stable from positive reflects a deterioration of Israel’s governance, as illustrated by the recent events around the government’s proposal to overhaul the country’s judiciary.”
“Mass protests have forced the government to pause legislation and seek dialogue with the opposition, but the way the government has attempted to implement a broad reform without seeking broad consensus points to a weakening of institutional strength and policy predictability,” it continued.
As a result, Israel’s grade now has balanced risks, contributing to a stable outlook. On the negative side, the government has maintained its desire to alter how judges are chosen even if discussions regarding the precise shape of judicial reform are still ongoing.
According to Moody, this indicates that there is still a chance for more political and social unrest in the nation.
The good news is that Moody’s previously identified economic and fiscal trends will continue if a resolution is found without escalating these tensions.
Overall, the recent events negated the favorable developments that had prompted Moody’s to assign an optimistic outlook in April 2022 and related to solid economic and budgetary performance and the execution of structural reforms by the previous administration,” the rating agency said.
Israel’s strong economic growth and advancing fiscal health, which Moody anticipates will continue in its base case, are reflected in the affirmation of the A1 ratings.
With the aid of Israel’s globally competitive high-tech industry, the economy has shown itself robust to numerous economic and geopolitical shocks over the past few decades and has expanded at a rapid rate.
The baseline predictions made by Moody presume that medium-term growth will remain strong.
The government’s fiscal indicators have rapidly improved after the pandemic-induced transitory shock. The public debt-to-GDP ratio fell by ten percentage points of GDP in just two years to 60.7% in 2022. By the end of the following year, Moody anticipates a further decrease toward 55%.
The events since the beginning of the year have demonstrated the resilience of Israeli civil society, but they have also revealed divisions in Israeli society that go beyond judicial reforms and will probably keep social and political dangers high for some time.
Over the longer term, the increased division threatens to erode economic strength and policy effectiveness.
Therefore, the recent occurrences nullified the favorable developments, which included good monetary and fiscal performance and the implementation of structural reforms, that prompted Moody’s to assign an optimistic outlook in April 2022.
The announcements are consistent with the evaluations given on Thursday by senior economic officials in Israel.
According to those representatives, Moody’s downgraded the company because of a delay in the legislation and the negotiations on the judicial reform.
According to Moody’s, the country’s sovereign credit rating outlook could be lowered from positive to stable, which issued an unusually unprecedented warning to Israel last month.
The credit rating agency Fitch confirmed Israel’s credit rating at the A+ level, leaving the rating outlook at “stable” about a month and a half ago.
The business also included a caveat in the announcement, warning that “the judicial reform could still hurt the country’s credit profile.”
In a joint statement released late Saturday night in reaction to Moody’s assessment, Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich emphasized that “Israel’s economy is stable and solid, and with God’s help, it will remain so.”
Moody’s “are being affected by the atmosphere,” and “they have friends in Israel who are telling them tales,” according to government sources mentioned on Israeli media. Are they knowledgeable about judicial reform? In no way. We learned from their chats that they don’t completely comprehend the specifics.