Moody's rating agency downgrades Israel’s credit outlook, 'points to a weakening of institutional strength

The prominent financial ratings agency Moody's downgraded Israel’s economic outlook from positive to stable. The agency stressed the “deterioration of Israel’s governance,” referring to the deep divisions in Israeli society over the Netanyahu government’s controversial judicial overhaul plan. 

Moody’s 8-page report warned that the current policies of Netanyahu's government risk undermining Israel’s fundamental institutions, including an independent judiciary. 

“While mass protests have led the government to pause the legislation and seek dialogue with the opposition, the manner in which the government has attempted to implement a wide-ranging reform without seeking broad consensus points to a weakening of institutional strength and policy predictability,” Moody's report concluded. 

However, Moody's decided to keep Israel’s A1 credit rating, pointing to the country’s “strong economic growth and improving fiscal strength.”

“The Israeli economy has grown at a rapid rate over the past several years, averaging 4.1% over the decade to 2022, helped to an important extent by the globally competitive and increasingly diversified high-tech industries,” stated Moody's. 

Referring to Moody's downgrade of the Israeli credit outlook, Israeli opposition leader Yair Lapid blasted the Netanyahu government for undermining Israel and endangering the livelihood of Israelis. 

“The announcement… is proof that the regime coup endangers the livelihood of every Israeli citizen. The lies and attempts to blame others will not help in this case,” Lapid tweeted.

The opposition leader further compared the performance of the Israeli government with the previous Bennett-Lapid government. 

“The facts are clear: The government I led handed them a strong and prosperous economy, and under the watch of [Prime Minister Benjamin] Netanyahu and [Finance Minister Bezalel] Smotrich, everything is falling apart,” claimed Lapid. 

“They should announce that they are stopping the legislative madness, and that they will take care of the economy and the livelihoods of the country’s citizens,” concluded Lapid, who previously served as finance minister under Netanyahu. 

Avigdor Liberman, another former finance minister and a harsh critic of Netanyahu, blasted the government, claiming it “is destroying the Israeli economy.”

“Just in April last year, when I was finance minister, Moody’s raised Israel’s outlook to positive, and I responsibly left the current government with a growing economy and a budget surplus of about NIS 10 billion. And here after three months, we are on the verge of economic collapse,” Liberman said.

The reactions from Netanyahu's government were unsurprisingly strikingly different.

The prime minister criticized Moody’s economic downgrade decision in a joint statement with Smotrich. 

“The concern that Moody’s analysts raise about the public controversy and its effect on Israel’s political and economic stability is natural for those who do not know the strength of Israeli society,” read the joint statement from Jerusalem. 

The Israeli prime minister and finance minister further stressed the robustness of the Israeli economy. 

“The analysts at the Moody’s ratings agency correctly recognize the strength of the Israeli economy in all indices and the correct and responsible economic leadership that we lead, with the wise management of public spending and in the advancement of growth-encouraging reforms.” 

While recognizing the current crisis in Israeli society, Netanyahu and Smotrich argued that the Jewish state would eventually overcome its current problems. 

“As those who believe in the strength of Israeli society, its unity and its ability to overcome disputes and crises, as it has done many times in the past, we are confident that with God’s help, it will be thus once more.” 

Meanwhile, leading Israeli economists criticized the government’s handling of the Moody's economic downgrade as being “disconnected from reality.” 

In addition, the Israeli top economists blasted the Netanyahu government for taking undue credit for the previous achievements of the Bennett-Lapid government, “such as deficit reduction and the passing of important reforms, in addition to boasting of unsubstantiated promises that have been repeated and voiced for many years and, above all, it ignores the content of the warning.”