Moody’s warns judicial overhaul could weaken Israel’s institutional strength, would be ‘credit negative’

The Moody’s rating agency issues a warning that Israel’s planned judicial overhaul could weaken the country’s institutional strength.

The “proposed judicial overhaul could lead to weaker checks and balances with negative implications for the country’s institutions and governance strength,” the ratings agency says.

“If implemented in full, the proposed changes could materially weaken the strength of the judiciary and as such be credit negative,” Moody’s warns.

“The planned changes could also pose longer-term risks for Israel’s economic prospects, particularly capital inflows into the important high-tech sector.

Noting that the Israeli government has presented “a package of reforms that would represent substantive changes to the country’s judiciary system,” Moody’s adds: “The scale of the changes and the speed with which the government attempts to push them through parliament have led to widespread criticism from civil society groups, opposition politicians and the international community. Israel has seen continued large-scale protests since January 2023. It remains to be seen whether the proposed changes will be implemented in their current form or whether some sort of compromise will be reached.”

A Channel 12 report says government officials had been holding talks with Moody’s in recent days trying to convince them that the reforms will not have a negative impact.

Last week, Fitch Ratings affirmed Israel’s A+ credit rating with a stable outlook, citing the country’s “diversified, resilient” economy, but also warned that the government’s planned judicial changes could have a “negative impact” on the country’s credit profile.

Fitch cautioned that the judicial overhaul could weaken institutional checks, leading to “worse policy outcomes or sustained negative investor sentiment.”

Prime Minister Benjamin Netanyahu’s hard-right coalition has prioritized the controversial proposals to transform the justice system, which are being spearheaded by Justice Minister Yariv Levin. The proposed legal overhaul would grant the government total control over the appointment of judges, including High Court justices, and severely limit the High Court’s ability to strike down legislation — concentrating almost all governing authority in the hands of the political majority.