Netanyahu, Smotrich hail S&P for affirming credit score, shrug off overhaul warnings

PM, finance minister vow upcoming budget will ‘strengthen economy’ as senior Treasury official warns planned funds for ultra-Orthodox will have grave consequences

Prime Minister Benjamin Netanyahu (left) and Finance Minister Bezalel Smotrich during a press conference, at the Prime Minister's Office in Jerusalem, on April 30, 2023. (Alex Kolomoisky/Pool)
Prime Minister Benjamin Netanyahu (left) and Finance Minister Bezalel Smotrich during a press conference, at the Prime Minister's Office in Jerusalem, on April 30, 2023. (Alex Kolomoisky/Pool)

Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich on Saturday, welcomed the decision by Standard & Poor’s (S&P) to keep Israel’s AA credit rating favorable, while disregarding its warnings over the coalition’s controversial judicial overhaul plans.

The New York-based credit rating firm on Friday praised Israel’s “resilient economy, strong balance of payments, and a moderate level of public debt,” but also warned of “persistent domestic and regional political and security risks,” among them, the overhaul legislation and conflict with Gazan terrorists.

“The preservation of Israel’s positive credit rating during a time of global economic challenges is a vote of confidence in our current economic policies,” said a joint statement issued by Netanyahu and Smotrich.

“Soon, we will pass a state budget in the Knesset to ensure the continuation of our efforts to strengthen the economy and the struggle against the cost of living, for the good of all Israeli citizens,” they added, ignoring the company’s warnings.

In its report, S&P said political instability, combined with ongoing economic challenges in the United States and Europe, would cause growth in the country to “slow to 1.5% in 2023 from 6.5% in 2022.”

It urged the government to forge some form of consensus on its overhaul plans, which would allow the economy to “recover to an annual average of 3.5% from 2024, supported by strong performance in Israel’s diversified high-tech sector.”

Protesters against the government’s judicial overhaul plans in Tel Aviv, on May 13, 2023. (Avshalom Sassoni/Flash90)

Israel has seen months of mass protests against the efforts to radically revamp the judiciary, which include bills to bring most judicial appointments under political control and to weaken the check on government by the High Court of Justice. The legislative effort began in January and was temporarily suspended by Netanyahu in late March amid growing public pushback and uproar over his attempted sacking of Defense Minister Yoav Gallant, who had publicly warned against the bid.

S&P outlined different scenarios for how the judicial overhaul plans, spearheaded by Justice Minister Yariv Levin, could play out. If the proposed legislative package moves forward in its current form, it “could further exacerbate the polarization of domestic politics” and could in the future be reversed by subsequent governments, the credit agency said.

If the overhaul bid in its entirety is trashed, Netanyahu’s far-right and ultra-Orthodox coalition partners could find it unacceptable, which could lead to “the government resigning and another out-of-cycle general election,” S&P added.

Netanyahu’s government is currently focused on passing a two-year state budget before the May 29 deadline. Failure to do so would lead to snap elections. The cabinet is expected to approve NIS 13.6 billion ($3.7 billion) worth of coalition funds on Sunday.

The funds include NIS 4.2 billion ($1.1 billion) for ultra-Orthodox yeshivas, NIS 1 billion ($270 million) for food stamps (mainly for Haredi communities), NIS 1.2 billion ($330 million) for Haredi education, and NIS 100 million ($27 million) for Palestinian schools in East Jerusalem.

File: Ultra-Orthodox children on the first day of school in Neve Yaakov in Jerusalem, August 9, 2021. (Yonatan Sindel/Flash90)

Channel 12 news reported Saturday that the Finance Ministry’s Budgets Department has sounded the alarm over the allocation of funds, saying that increasing incentives for Haredi men to remain unemployed will have grave consequences for the country’s economy.

Yogev Gardos, the department’s head, said if Haredi unemployment rates remain elevated, by 2065 the economy will be NIS 6.7 trillion ($2 trillion) smaller, forcing the state to increase direct taxes by 16 percent.

According to the Calcalist economy daily, Netanyahu was heavily involved in talks with S&P representatives to get the credit agency to affirm Israel’s stable rating. The report said Netanyahu assured S&P economists the judicial overhaul would not be carried out in its original form.

President Isaac Herzog, who is holding compromise talks on the overhaul without much headway, was also reportedly involved in the talks.

On Wednesday, the International Monetary Fund (IMF) warned that prolonged uncertainty over Israel’s judicial overhaul presents a “notable downside risk” to the country’s economy.

Last month, Moody’s downgraded Israel’s credit rating, citing a “deterioration of governance” and rattling the Netanyahu government.

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