IMF says uncertainty over judicial overhaul poses ‘risks’ to Israeli economy

Sharon Wrobel is a tech reporter for The Times of Israel.

File: The logo of the International Monetary Fund is visible on their building, Monday, April 5, 2021, in Washington. (AP Photo/Andrew Harnik)
File: The logo of the International Monetary Fund is visible on their building, Monday, April 5, 2021, in Washington. (AP Photo/Andrew Harnik)

Prolonged uncertainty over Israel’s judicial overhaul presents a “notable downside risk” to the country’s economic growth, the International Monetary Fund warns.

“Absent the emergence of a durable and politically sustainable solution, continued uncertainty could significantly increase the price of risk in the economy, tightening financial conditions and hindering investment and consumption, with potential repercussions for growth, also in the longer term,” the IMF says in its initial country report on the Israeli economy.

“Permanently lowering the uncertainty around judicial reform requires a politically sustainable solution that is clearly communicated and well understood both domestically and abroad.”

“As in any country, maintaining strength of the rule of law would be important for economic success,”  the report says.

The initial report was presented to Finance Minister Bezalel Smotrich and Bank of Israel Governor Amir Yaron. The IMF’s detailed annual country report will be published at a later stage.

While warning about the uncertainty regarding the proposed judicial changes, the IMF commended Israel for its “remarkable” recovery from the coronavirus pandemic in 2022 which it said was based on strong fundamentals.

Looking ahead, “the outlook is for growth to slow broadly in line with potential, as inflation falls to the targeted range by the end of 2024,” the IMF says.

“However, the risk balance is tilted to the downside, reflecting, among other things, external risks and the continued uncertainty around the proposed judicial reform.”

Critics say the proposed reforms will undermine Israel’s democracy and rule of law.

The IMF forecasts economic growth to slow to about 2.5% in 2023 from the 6.4% rate last year. The Bank of Israel expects the economy to expand by 2.5% in 2023 and 3.5% in 2024.

Commenting on the report, Yaron notes that it points to “robust economic baseline conditions of the Israeli economy, alongside the challenges it faces, as well as the range of vital policy measures implemented by the Bank of Israel to eradicate inflation and maintain the stability and advancement of the Israeli economy.”

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