Fitch Hints at Rating Raise for Israel Should Judicial Reforms Be Halted

Benjamin Netanyahu press conference – Haim Zach (GPO) May 2023

International credit ratings agency Fitch may just be amenable to raising the rating that it gives Israel should the government of Prime Minister Benjamin Netanyahu drop its planned controversial judicial reform program.

This news comes a little over two weeks after fellow credit rating agency Standard & Poor’s (S&P) left Israel’s credit rating unchanged at AA-. In its assessment of the rating, S&P said Israel’s “resilient economy, strong balance of payments, and a moderate level of public debt,” were factors in its decision to leave Israel’s AA- rating unchanged.

Almost three months ago, Fitch reaffirmed Israel’s A+ rating. The move came a many feared a downgrading because the reform plan led many financial experts to express concern over the future of Israel’s stability and even some Israeli firms took their funds out of the country. But Fitch did acknowledge such concerns in the report that the firm issued at the time.

Fitch’s latest report on Israel is titled “Strong Economic Growth Key to Israel’s Debt Trajectory.” It states that Israel is expected Israel’s debt/GDP ratios are expected to continue to fall in the coming years.

However, Fitch is still concerned about Israel’s political turmoil writing, “Israel continues to face high levels of internal social and political tension, and the advancement of certain policies favored by the governing coalition could aggravate these strains and influence the sovereign rating.”

The government’s judicial reform plan would greatly curtail the power of Israel’s Supreme Court to nullify legislation passed by the Knesset and also limit the authority of Israel’s attorney general. Israel’s opposition charges this would harm Israel’s democracy thereby eroding foreign confidence in the country and hurting its economy.

Israel’s opposition leaders have described the reform plan as a Coup d’état and have been calling Israel’s Prime Minister a dictator for wanting to end judicial reform of government actions and new laws.

As a result, tens of thousands of people have been protesting just about every Saturday night since the judicial reforms were first announced a few months, even blocking major highways.

Things got so heated in Israel that its President, who serves in a ceremonial role and is supposed to stay out of the political debate, was forced to address the nation on national television to express his concerns that the country was on the verge of a civil war, asking all sides to tone down the hostile rhetoric.

But, in April Netanyahu called a halt to the process of its passage in the Knesset and agreed to enter into talks with the leaders of Israel’s opposition parties that are currently being held at the official residence of Israel’s President Isaac Herzog in Jerusalem. And the past few days have seen reports in Israel’s media suggesting that Netanyahu has been telling his party’s Knesset members that he might sap most of the plans, at least for the next year or so.

In response to this, the opposition in the Knesset agreed to tone down the

The cease fire, so to speak, between Netanyahu and the opposition came after the government had already pushed the new laws related to the judicial reforms through the relevant committees and held their first reading – preliminary votes – in the Knesset.

Since then the opposition leaders have reduced their attacks on Netanyahu and his government somewhat; however, they turned the heat up after the government past a new state budget for 2023 – 2024, calling it a catastrophe for the country and a giveaway to Israel’s Ultra-Orthodox communities whose parties the Netanyahu government relies on to maintain its majority in the Knesset.