Fitch reaffirms A+ rating, warns judicial overhaul could have negative impact

Fitch Ratings reaffirms Israel’s A+ rating with a stable outlook today, citing the country’s “diversified, resilient” economic performance, while warning that the government’s planned judicial changes could have a “negative impact” on the country’s credit rating.

“While the exact content of the reform is still subject to negotiations in parliament, Fitch believes the reform could have a negative impact on Israel’s credit profile by weakening governance indicator or if the weakening of institutional checks leads to worse policy outcomes or sustained negative investor sentiment,” Fitch says in a statement.

The rating agency expects Israel’s economy to grow at a rate of 2.9% in 2023 after expanding 6.4% in 2022, despite global challenges and monetary policy tightening that will curtail private consumption and investment.

Fitch also raises concerns about recent comments by Israeli lawmakers threatening to challenge the independence of the central bank and the pass-through of interest rates to mortgages.

“So far, these efforts have been resisted by the prime minister and the minister of finance,” Fitch says. “While not our base case, a weakening of central bank independence would reduce the credibility of Israel’s policy-making, currently a rating strength.”

Finance Minister Bezalel Smotrich said that Fitch’s decision shows that the government is “taking all the right steps to move the State of Israel forward.”

“Last week, the government approved an excellent, responsible, restrained and growth- and infrastructure-oriented budget, and despite the rising global inflation, we manage to fortify the State of Israel as an island of stability, a growing economy and an excellent place for investment,” Smotrich says in a statement.