January 27, 2023

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Major Agency Issues Warning about Israel’s Credit Rating

3 min read

Standard & Poor’s (S&P) recently issued a warning about the credit rating of Israel suffering from a negative impact due to the radical judicial reforms that have been outlined by the new government.

The credit rating agency also warned that the hardline policies of the new Israeli government in the West Bank could also push down its credit rating.

The warning

Maxim Rybnikov, the Director of Global Ratings of the credit rating agency, said that there was a risk of downside to the country’s ratings.

This would be because the changes that have been announced for the judicial system could set a trend that would weaken the institutional arrangements as well as the checks and balances that exist in Israel.

But, he added that it has not happened as yet. He added that the security situation would be the main concern because more hardline policies would only undermine it.

He noted that there could be risks if the West Bank’s fragile situation is dealt with hardline policies. He also said that more protests against the new government also did not bode well for the economy.

Prime Minister Benjamin Netanyahu’s hard-right government has vowed to introduce judicial reforms that would give the coalition control when making judicial appointments.

They will also be able to limit the oversight of the government by the court.

The reaction

The so-called judicial overhaul has received a lot of backlash. Esther Hayut, the Supreme Court President, denounced the said plan on Thursday.

She said that the democratic identity of the country would take a hit and the Knesset would have the power of passing any legislation, even if it violates basic civil rights.

She also added that the court would not have the tools required for putting a check and balance on executive power.

The risks

Rybinkov said earlier this week that if there is consistent weakening in Israel’s institutional system and the system of checks and balances is damaged with too much power in the hands of a group or individual, it would damage public debate.

He said that this would result in less responsible fiscal policy, not just for a single year, but would become a part of policymaking in the future as well.

He went on to say that all of this would make a huge rating risk. Therefore, he said that they were tracking the developments related to the Supreme Court and the implications of the judicial changes.

He also stated that it was not a good for the institutional system that changes are made to certain laws for benefitting some people in certain positions.

The new government’s policy associated with the West Bank involves annexing parts of its territory, but it is a declarative one for now.

S&P had announced in November that it was keeping the favorable rating of Israel unchanged and gave it a ‘stable’ outlook.

The Israeli economy had recorded 6% growth in 2022, but its GDP was expected to grow only 2% this year because of global economic trends.

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