Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich have announced that Standard & Poor’s (S&P) will maintain Israel’s AA credit rating despite warnings about the coalition’s judicial reform plan. S&P praised Israel’s economy and warned of political and security risks, including the Gaza conflict. However, it also warned of persistent risks concerning laws and regulations. The Israeli government welcomed S&P’s decision and stated that the national budget will strengthen the economy and combat the cost of living. S&P predicts that Israel’s growth rate will slow from 6.5% in 2022 to 1.5% in 2023 due to political instability and ongoing economic challenges in the U.S. and Europe.
Mass protests have been ongoing for months in Israel against efforts to overhaul the judicial system. The legislative effort, which began in January, includes a bill to put most judicial appointments under political control and weaken checks on the government by the Supreme Court. Prime Minister Netanyahu paused the effort in March amid public backlash. If the judicial reform package proceeds in its current form, it could further polarize domestic politics and be reversed by subsequent governments.
The Israeli government is focused on passing a two-year state budget by May 29. Failure to do so will lead to a snap election. The Cabinet is due to approve a coalition fund worth NIS 13.6 billion ($3.7 billion), including funding for ultra-orthodox yeshiva, food stamps for the Hardi community, and Hardi education. The Treasury Budget Office warns about the funding allocation, stating that increasing incentives for Haredi men to remain unemployed would significantly impact the country’s economy.
Prime Minister Netanyahu has been negotiating a compromise on the judicial overhaul with S&P representatives. President Isaac Herzog is also reportedly involved in the negotiations. The International Monetary Fund (IMF) warns that prolonged uncertainty over Israel’s judicial reform poses significant downside risks to the country’s economy. Moody’s recently downgraded Israel’s credit rating, citing poor governance.
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