Israel’s credit score was affirmed with a stable outlook by Fitch Ratings, in a surprise reprieve for the government following months of protests over a planned judicial overhaul that’s rattled investors.
(Bloomberg) — Israel’s credit score was affirmed with a stable outlook by Fitch Ratings, in a surprise reprieve for the government following months of protests over a planned judicial overhaul that’s rattled investors.
Fitch kept the sovereign rating at A+, its fifth-highest investment-grade level and on par with Saudi Arabia and Malta. In a statement on Monday, it said the government’s divisive plan “has been watered down but remains highly controversial.”
“Our base case assumes limited impact from the judicial changes beyond the protests’ impact on consumption and a delay in some capital investment decisions, although risks of a greater impact remain,” it said.
Israel’s currency traded little changed against the dollar as of 4:11 p.m. in Tel Aviv. With a loss of about 10% since late January, the shekel is among the five worst performers among a basket of major currencies tracked by Bloomberg.
The reassurance followed months of warnings from the three major credit assessors over the risks facing Israel as a result of the fallout from political and social tensions.
In a joint statement, Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich seized on Fitch’s remarks as evidence of “what we have been saying all along — Israel’s economy is strong, stable and solid.”
“Israel is good for business,” they said. “Those who invest in Israel — benefit.”
Netanyahu returned to power following elections last year by forming a pact with far right, ultra-Orthodox and nationalist parties. The coalition soon rolled out plans to reduce the power of the courts, triggering mass protests from opponents who feared an erosion of the country’s democracy.
Though the effort was briefly suspended in March, negotiations to find a compromise between Netanyahu’s cabinet and the opposition eventually broke down. In late July, parliament passed legislation that prevents judges from voiding government decisions they deem “unreasonable” during a session that was boycotted by opposition lawmakers.
Different Paths
Netanyahu and his supporters argue that the current system has given judges too much power. Opponents say the country’s political structure means the judiciary is the only real check on politicians.
In an interview this month, Netanyahu said his government would also seek to change the way judges are selected, prompting a backlash from Israel’s opposition and protest movement. Though the prime minister promised to negotiate, he said the government would move forward with the measure if it gets enough support for it from the public.
“The changes may have a negative impact on Israel’s credit metrics if the weakening of institutional checks leads to worse policy outcomes or sustained negative investor sentiment or weakens governance indicators,” Fitch analysts led by Cedric Julien Berry said in the report. “Fitch considers the current measures are unlikely to trigger a material exodus of talent and capital in the high-tech sector.”
The rating company attributed much of the decline in funds raised by Israel’s high-tech industry this year to “global trends” and said it was hard to estimate how much the political turmoil had affected investors.
“Uncertainty generated by the judicial changes only partly explains this,” Fitch said. “The sector’s diversification and maturity provide substantial resistance to shocks, although some segments are likely to suffer from more constrained funding options.”
(Updates with details and context from fourth paragraph.)
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