Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich issued a joint statement on Saturday night, responding to leading ratings agency Moody’s, which on Friday downgraded Israel’s economic outlook from positive to stable over the government’s highly contentious bid to dramatically overhaul the judiciary.
“Israel’s economy is stable and solid and with God’s help, it will remain so,” the statement read.
Before the statement was issued, Channel 12 news quoted “sources associated with the prime minister” — often code for messages conveyed on behalf of the premier himself — as criticizing Moody’s for its assessment.
The sources said ratings agencies such as Moody’s “are being affected by the atmosphere. They have friends in Israel who are telling them tales. Are they well-versed [on the issues]? Not at all. In conversations with them, we discovered that they don’t really understand the details.”
Channel 12 reported that in recent days, Netanyahu and President Isaac Herzog, who is hosting compromise talks on the overhaul, held urgent discussions with senior Moody’s officials in a bid to reassure the agency.
For example, the sources said, “They were not aware of Netanyahu saying the court override would not pass as [Justice Minister] Yariv Levin had presented it — and it was the override clause that troubled them most.” The so-called override clause is a key bill in the overhaul plan that would allow the Knesset to override any court decision to strike down a law with a majority of 61 MKs.
The network noted that Moody’s latest assessment follows months of conversations with top economic and Treasury officials.
The sources also added, however, that, “The very fact that only the outlook was updated and not the rating itself — despite an aggressive campaign by the protest movement — shows that they too understand that the Israeli economy is strong.”
In their joint statement, Netanyahu and Smotrich said that, “The analysts at the Moody’s ratings agency correctly recognize the strength of the Israeli economy in all indexes and the correct and responsible economic leadership that we lead, with the wise management of public spending and in the advancement of growth-encouraging reforms.
“The concern that Moody’s analysts raise about the public controversy and its effect on Israel’s political and economic stability is natural for those who do not know the strength of Israeli society.”
In its decision, the ratings agency cited the “deterioration of Israel’s governance” amid months of upheaval over the government’s highly contentious bid to dramatically overhaul the judiciary.
“As ones who believe in the strength of Israeli society, its unity, and its ability to overcome disputes and crises, as we have done many times in the past, we are convinced that with God’s help, it will be so this time as well,” the statement added.
Constitution Committee head MK Simcha Rothman, who is leading the overhaul push, claimed Moody’s, in its assessment, had actually “said some very uncomfortable things about the protest and the damage it has caused” by “dragging the labor federation and the military into the protests.”
Moody’s said in its statement that “the manner in which the government has attempted to implement a wide-ranging reform without seeking broad consensus points to a weakening of institutional strength and policy predictability.”
Rothman on Saturday said journalists who had reported on the assessment as criticizing the government’s role in the recent chaos were “protest activists” and “propagandists.”
Late last month, Netanyahu announced a pause to the legislation to weaken the Supreme Court, as the coalition and opposition hold talks to try to achieve a consensus on judicial reform, but the premier also stressed that the effort would resume even if no agreements are reached.
Weekly mass protests around the country against the government’s plans to weaken the judicial system have continued even after Netanyahu paused the legislation. Coalition members have vowed to press forward with the legislative push after the Knesset’s Passover recess.
While Israel’s credit outlook took a hit on Friday, Moody’s kept the country’s actual credit rating at A1, citing “strong economic growth and improving fiscal strength,” it said.
Israel’s economy, Moody’s said, “has proven resilient to many economic and geopolitical shocks over the past decades and has grown at a rapid clip, helped by Israel’s globally competitive high-tech industries. Moody’s baseline projections assume continued robust growth in the medium term.”
“The Israeli economy has grown at a rapid rate over the past several years, averaging 4.1% over the decade to 2022, helped to an important extent by the globally competitive and increasingly diversified high-tech industries,” it said.
Israel’s vaunted tech sector has long been touted as the main engine of Israel’s economic growth, accounting for 49% of total exports and generating around 15% of GDP in 2022.
It has been a key part of the opposition to the government’s judicial plans, with some firms moving significant funds abroad and threatening to relocate if democracy is harmed.
Moody’s warned Friday that Israel’s credit ratings could also come “under downward pressure if the current tensions were to turn into a prolonged political and social crisis with material negative impact on the economy, possibly linked to substantially lower capital inflows into the important high-tech sector and relocation of Israeli firms abroad.”
Moody’s said that while the Israeli government was indeed holding deliberations, it has also “reiterated its intention to change how judges are selected. This means that the risk of further political and social tensions within the country remains.” But should a compromise be reached “without deepening these tensions, the positive economic and fiscal trends that Moody’s had previously identified remain.”
Earlier this month, the OECD cautioned that the country’s pace of economic growth is expected to moderate, warning that “risks are skewed to the downside, related to high global and domestic uncertainty.” The organization sees GDP slowing from the 6.4% growth rate last year to 3% in 2023 and 3.4% in 2024.
On Friday, the release of the March consumer price index (CPI), a measure of inflation that tracks the average cost of household goods, showed an increase of 0.4% from February. CPI has been hovering above 5% in annual terms for the past six months, falling short of the government’s target range of 1% to 3%.
The rise in inflation came despite steps taken by the Bank of Israel to rein it in. The central bank has over the past year steadily hiked its benchmark interest rate from a record low of 0.1% last April to 4.5% earlier this month in a bid to bring down price growth.
Inflation has been slower to ease in part due to a weaker shekel, which is making imported goods more expensive. Since the beginning of this year, the local currency has depreciated about 4% against the US dollar. The US dollar index, which measures the greenback against six major world currencies, has declined about 2% since the start of 2023.