Moody's "Israel's Judicial Reforms Increase Economic and Security Risks"

As the bill to curtail Israel's judicial authority was passed and entered the full legislative phase, analyses have emerged suggesting that this could lead to a downgrade in the country's credit rating and increased security risks.

International credit rating agency Moody's warned on the 25th (local time) that the legislation to weaken Israel's judiciary (the Basic Law amendment concerning the judiciary) is increasing risks to the economy and security. In a report released that day, Moody's stated, "There is a risk that the judicial reform legislation will escalate political and social tensions," adding, "This is expected to have a negative impact on Israel's economic and security situation."

Moody's noted, "The approval of the judicial reform bill occurred amid widespread anti-government protests by civil society groups that have continued since January," and predicted that such conditions are likely to persist for the time being. It also added that petitions to nullify the judicial reform legislation have been filed with the Supreme Court, exacerbating the constitutional crisis between the executive and judiciary.

Moody's assessed that the economic impacts related to judicial reform, which had been previously raised, are beginning to materialize. About three months after the judicial reform plan was unveiled, in April, Moody's downgraded Israel's governance outlook from 'positive' to 'stable,' citing a deterioration in Israel's governance structure.

The Israeli labor unions have announced a general strike, and if thousands of reservists follow through on their threats to refuse service, a significant gap in national defense capabilities is expected. Tens of thousands have blocked roads nationwide, including around the parliament and Supreme Court, continuing protest demonstrations, which have also started to halt some economic activities.

The Tel Aviv 35 Index, the representative index of the Israeli stock market, has plunged 5.2% over the past two days. Moody's evaluated, "While internal conflicts and geopolitical tensions have not previously had a significant impact on the Israeli economy, if tensions with the Palestinians escalate further, the impact on Israel's economy will be unavoidable, and this could jeopardize relationships with allies such as the United States."

[Image source=UPI Yonhap News]

Meanwhile, the Netanyahu government has announced additional legislation, suggesting that socio-political turmoil is likely to continue. Yariv Levin, the Minister of Justice who led the current amendment, stated, "This measure is the first step in a historic process to correct the judicial system," and warned that further legislation will reduce the judiciary's powers even more. Itamar Ben-Gvir, the Minister of National Security and a prominent far-right figure within the coalition, also supported this, saying, "The bill passed today is important for democracy. This is just the beginning."

In response to Moody's report, the Netanyahu government issued a rebuttal statement. Prime Minister Netanyahu and Finance Minister Bezalel Smotrich jointly stated, "The Israeli economy has a strong foundation and will continue to grow," adding, "(The disruption caused by judicial reform) is temporary, and once the situation stabilizes, it will be clear that the Israeli economy is strong."

The day before, the Israeli parliament voted on the coalition-backed 'Basic Law amendment concerning the judiciary,' passing it with 64 votes in favor and 0 against. The opposition boycotted the final vote held after the third reading in protest of failed last-minute negotiations, but the bill was finalized with the support of 64 coalition members.

The key point of the passed amendment is the reduction of the judiciary's powers. In Israel, where the president's powers are limited and there is no constitutional court, the Supreme Court fulfills that role. Under the amended law, the judiciary will lose its existing authority to unilaterally annul major executive decisions.

This content was produced with the assistance of AI translation services.