The international rating agency Moody’s published a regular report on the Israeli economy, in which it lowered the outlook for Israel’s sovereign credit rating from positive to neutral. The rating itself is left at A1.

Recall that the forecast was raised from neutral to positive in April 2022 against the background of the high-tech boom and the Israeli economy’s recovery from the pandemic crisis. A positive outlook means that there is a significant likelihood of an upgrade in the credit rating in the foreseeable future.

“The manner in which the government is trying to implement a wide-ranging reform without seeking a broad consensus is indicative of a weakening state institutions. Despite the start of negotiations on the format of the reform, the government stressed that it intends to change the mechanism for choosing judges in Israel, which means that the political and public “The crisis in Israel continues. If a solution is found that will not deepen this crisis, the positive horizon of developments that the agency observed earlier will continue,” the report says.

At the same time, the report notes that “many in Israel support certain changes in the judiciary. The business sector complains about the length of litigation, and there is an understanding of the need for a clearer definition of the powers of the Supreme Court and greater diversity in its composition, however, the primary options for reform promoted this government will not give the required decision, and the way it is held in the Knesset indicates the weakening of state institutions.In addition, the legislative and executive branches have become less predictable and more prone to actions that carry high risks for the economy and society.”

“The events of the beginning of this year have shown the existence of a strong civil society, but they have exposed a deep split in Israeli society, not only related to judicial reform, and the political and social risks associated with this split will not disappear in the near future.” The report emphasizes that deepening the rift could undermine the effectiveness of government policies and Israel’s economic resilience over the medium term, putting negative pressure on the country’s credit rating.

The agency’s analysts emphasize that the possibility of raising Israel’s credit rating was previously considered, “due to positive developments in the country’s economy related to economic and fiscal indicators and structural reforms carried out by the previous government,” however, in their opinion, the events of recent months crossed out this .

The affirmation of the A1 rating reflects strong economic growth and improved fiscal performance: “The economy has proven resilient to the economic and geopolitical shocks of recent decades, and is showing rapid growth supported by a globally competitive high-tech industry.”

In the medium term, Moody’s baseline forecast indicates continued economic growth and a continued decline in the ratio of public debt to gross domestic product to 55% by the end of next year.

In addition, the authors of the report note that at the moment there is no indication of a significant withdrawal of capital from Israel or a revision of foreign investment in Israeli high-tech.