Moody's releases special report: 'Judicial reform legislation will lead to negative consequences for Israel's economy'

A day after first judicial overhaul bill passes in Knesset, the credit rating agency published an unscheduled report for investors, which warns against investing in Israel; Also, investment bank Morgan Stanley said: 'Uncertainty regarding the state of the Israeli economy in the coming months'; Netanyahu and Smotrich respond: 'When the dust settles, it will become clear that Israel's economy is very strong'
Gad Lior|Updated:
The international credit rating company Moody's published Tuesday evening an unscheduled report for investors on Israel's economy that warns against investing in Israel. "We anticipate negative consequences for Israel's economy and security," it said. In April, Moody's lowered Israel's credit rating forecast from "positive" to "stable."
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At the same time, the investment bank Morgan Stanley published a response to Israel's situation in which it stated that there is "uncertainty about the state of the economy in the coming months"; the bank now ranks Israel as in a " dislike stance." Citi Bank published a note to investors on the situation in Israel following the passage of the legislation saying that a constitutional crisis in the event of the High Court's intervention in the legislation and possible dismissal of the attorney general could lead to a shake-up in the markets. "The situation is getting more dangerous and more complicated," it said.
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 ישיבת ממשלה
 ישיבת ממשלה
Finance Minister Bezalel Smotrich and Prime Minister Benjamin Netanyahu
(Photo: AFP)
In April, Moody's changed the outlook for Israel's credit ratings from "positive" to "stable", while confirming the A1 long-term issuer ratings in foreign currency and local currency.
"This is a momentary response; when the dust clears, it will be clear that the Israeli economy is very strong," Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich said in a joint statement in response to Moody's announcement.
"The security industries are bursting with orders. The gas industry is increasing exports to Europe and seven companies are now competing for tenders to explore for gas in Israel at an investment worth billions. Intel is planning its largest investment outside of the US ever and will invest $25 billion in Israel. NVDIA is building a supercomputer in Israel and we are moving forward in AI, cyber and the manufacture of chips in Israel. Growth is increasing and inflation has been blocked. Regulation is being lifted and free market competition is increasing," the statement also said.
"The Israeli economy is based on strong fundamentals and will continue to grow under experienced leadership that is enacting a responsible economic policy," it concluded.
Israeli business leaders who have recently spoken with leading credit rating agencies heard their concerns about the advancement of judicial reform laws and expressed great disappointment and frustration that the president and prime minister had explicitly promised them just weeks ago that the process would be halted and any actions taken as part of the reform would only be done with broad consensus.
Last week, economists from the credit rating agency Fitch visited Israel and met with top economic government officials, the Bank of Israel and leading financial bodies.
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מטה מודי'ס בניו יורק
מטה מודי'ס בניו יורק
Moody's headquarters in New York
(Photo: Reuters)
Senior officials from various rating agencies spoke to key figures in Israel's economy and voiced their frustration with the legislation advancing explicit promises made by the president and prime minister.
Israel's credit rating is currently one of the world's best, ranging from A to AA. This rating puts Israel among the top 20 countries globally in terms of security the country will meet all its obligations and repay loans fully and on time.
A downgrade in credit rating would mean an immediate increase in interest rates on loans taken by the Israeli government and Israeli companies in global financial markets. This could lead to significant increases, maybe even sharp ones, in interest rates for private loan holders.
Just six months ago, Israel issued 10-year green bonds, worth $2 billion, and the demand for them far exceeded the supply, totaling over $10 billion. The interest rate set was exceptionally favorable at 4.5%.
The round was considered a success, mainly due to the sound economic policies implemented in Israel over the past two decades, particularly during Benjamin Netanyahu's tenure as prime minister in the previous decade. Therefore, the disappointment expressed by credit rating agencies is significant, as they fail to comprehend how the prime minister repeatedly assured that the judicial reform would benefit the economy.
First published: 16:28, 07.25.23
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