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Moody downgrades Israel’s credit outlook as more civil crises loom

TJI Wrap
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Published: 18 April 2023

Last updated: 5 March 2024

When the Knesset resumes after Yom Ha’atzmaut, judicial review and a new draft exemption law for Haredim will increase tensions again. 

The Israeli government’s planned judicial upheaval has – as predicted by economists, experts and protesters – been given a significant warning flag by credit rating agency Moody’s, which announced on Friday that it is downgrading the outlook for the country’s credit rating.

The credit rating agency published its detailed annual outlook on Friday. While Israel’s credit rating remains unchanged for now – at A1 – the outlook for the future, in which the company estimates which direction the rating will be heading in the foreseeable future – has been downgraded.

The move comes despite efforts by both President Isaac Herzog and Prime Minister Benjamin Netanyahu, who held talks with senior Moody’s executives, to persuade them not to lower Israel’s credit rating.

In the statement, Moody’s said: “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 for overhauling the country’s judiciary.”

The move comes as the Netanyahu government faces a 15th straight week of protests and falls in the polls which would make National Unity’s Benny Gantz prime minister if another election were held.

Almost half of Israelis blame Netanyahu for the credit downgrade.

When the Knesset resumes after Yom Ha’atzmaut at the end of April, Netanyahu will have to decide what to do about the controversial judicial overhaul legislation, placed on pause before Pesach after massive protests, and urging from both his own defence minister and the US president.

He will also face pressure from his far Right and Haredi partners to other controversial laws, likely to be strongly opposed by democracy protestors.

Ultra-Orthodox party leaders have threatened they will not pass the budget, scheduled for May 29, unless the Knesset passes a haredi military draft bill. The bill is aimed at increasing the number of Haredim who can use yeshiva studies to gain exemption from military service and also lower the age for general exemption to enable haredi men to join the workforce earlier.

It also faced criticism this week from one of its natural allies, the Jerusalem Institute for Strategy and Security (JISS), a security-focused, conservative think tank.

In a position paper, titled “Israel should prepare for war — and politicians need to come to their senses,” JISS said judicial reform efforts had “caused enormous damage to the State of Israel.”

“On the political level, the image of American backing has been undermined … On the economic level, the country’s credit rating has decreased. The public discourse in Israel reached new heights of acerbity and alienation. Above all, national cohesion was cracked, primarily due to the IDF being used as a tool in the political debate.”

Citing ‘Deterioration of Governance,’ Moody’s Downgrades Israel’s Credit Outlook (Haaretz)

PM’s associates reject Moody’s downgrade: ‘They aren’t well-versed on the issues’ (Times of Israel)

Gantz in the lead, Netanyahu trails behind in new poll (Haaretz)
In a Channel 12 poll, 47% say Netanyahu's government is to blame for Israel's downgraded Moody's forecast.

Hundreds of thousands rally against judicial overhaul plans for a 15th straight week (Times of Israel)
Protest organisers vow to push on until legislation shelved; smaller pro-overhaul rallies take place in 12 locations, with Police Minister Itamar Ben-Gvir at Netanya counter-demonstration.

UTJ demands that haredi Draft Law amendment pass before budget (Jerusalem Post)
The coalition leaders are set to meet on Sunday to discuss the issue further.

Israeli conservative think tank warns legal overhaul causing ‘enormous damage’ (Times of Israel)
Jerusalem Institute for Strategy and Security says politicians must ‘come to their senses’ and focus on ‘existential security challenges,’ as Iran boosts influence in region.

Netanyahu falls in polls, could abandon judicial overhaul (Ben Caspit, Al-Monitor)
Pressured by security threats, bad polls and criticism from the White House, Prime Minister Benjamin Netanyahu tries saving whatever is left to save of his status.

Will Moody’s Downgraded Outlook for Israel Finally End Netanyahu’s Judicial Overhaul? (Anshel Pfeffer, Haaretz)
Netanyahu realised weeks ago that his government’s judicial overhaul was more trouble than it was worth, and Friday’s downgraded credit outlook for Israel gives him the perfect alibi to shelve it.

Photo: An anti- Netanyahu demonstrator in Tel Aviv earlier this month (JACK GUEZ – AFP)

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