Israel’s Credit Rating Takes a Hit Following Controversial Judicial Reform

Morgan Stanley downgraded Israel’s sovereign credit rating to a “dislike stance” on Tuesday, predicting a potential economic downturn as the Knesset’s recent controversial judicial reform could deter investors. The financial services firm anticipates escalating economic uncertainty and a potentially adverse scenario in the coming months. Additionally, it highlighted the potential for further depreciation of the shekel and losses in the Tel Aviv Stock Market, which has already dropped nearly 10% since last November.

On the same day, Moody’s Investors Service expressed concerns about “negative consequences for Israel’s economy and security situation,” due to persisting political and social tensions surrounding the judicial reform. Moody’s added that the sweeping government proposals could significantly undermine the judiciary’s independence and disrupt critical checks and balances within the government, which they see as crucial for strong institutions.

Despite Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich dismissing Moody’s announcement as a “momentary reaction,” growing concerns persist. A recent report from Start-Up Nation Central indicated that 68% of startups had already started taking precautionary measures, such as moving their headquarters outside of Israel, due to the anticipated economic impact of the reform.