Israel’s political and social tensions over a law that will curb the oversight powers of the courts will continue, weighing on the country’s economy and security, according to Moody’s Investors Service.
(Bloomberg) — Israel’s political and social tensions over a law that will curb the oversight powers of the courts will continue, weighing on the country’s economy and security, according to Moody’s Investors Service.
There is “significant risk” for the tensions to continue with “negative consequences for Israel’s economy and security situation,” Moody’s Kathrin Muehlbronner, Lenaic Couderc and colleagues warned in a report released Tuesday.
“We believe the wide-ranging nature of the government’s proposals could materially weaken the judiciary’s independence and disrupt effective checks and balances between the various branches of government,” the note read.
The bill, passed by Prime Minister Benjamin Netanyahu’s government, weakens the power of judges and has sent hundreds of thousands of Israelis to the streets in protest, which Muehlbronner and Couderc expect to continue. “The executive and legislative institutions have become less predictable and more willing to create significant risks to economic and social stability.”
READ MORE: Why Israel Is Bitterly Split by a Judiciary Overhaul: QuickTake
In a joint response, Netanyahu and Finance Minister Bezalel Smotrich defended the government’s economic track record, citing foreign investment, a strong job market, rising growth and slowing inflation.
“Israel’s economy is based on solid foundations and will continue to grow under experienced leadership that promotes a responsible economic policy,” they wrote.
The shekel fell for the fourth day on Tuesday to 3.71 per dollar. The benchmark stock index dropped as much as 3.7% during Tuesday’s trading hour, the biggest loss since February 2022. Local currency bonds also slumped, weakening the most since February.
READ MORE: Israel Assets Slump Most in World on Protests Over Judiciary (3)
Moody’s changed Israel’s credit outlook to stable from positive in April, citing that the nation’s governance had deteriorated, illustrated by the proposal to overhaul the judiciary. Venture capital investments in Israeli high-tech firms have declined materially, with the sector raising $3.7 billion in the first six months of the year, according to Moody’s.
–With assistance from Sunil Kesur and Galit Altstein.
(Updates with government response in fifth and sixth paragraphs.)
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