Benjamin Netanyahu dismisses negative Moody's report on Israeli economy

Ratings agency warns of consequences from government's push for controversial legal overhaul

Israeli Prime Minister Benjamin Netanyahu has again defended the government's judicial overhaul. Reuters
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Israel's Prime Minister Benjamin Netanyahu played down a stark warning by Moody’s on Tuesday in which the ratings agency said the country’s economy faced “significant risk” after the government passed the first bill in its controversial legal overhaul package.

In a joint statement with Finance Minister Bezalel Smotrich, the Mr Netanyahu described the Moody's report as a “momentary response”.

“When the dust clears, it will be clear that the Israeli economy is very strong,” the statement said.

It is the latest example of disquiet in Israel's business and financial sector over potentially negative consequences for the economy as a result of the judicial overhaul, which critics say will end democracy.

The Moody’s warning comes four months after it lowered Israel’s credit outlook due to a “deterioration” in governance.

Since then, failed negotiations with the opposition to find a compromise on the divisive legal overhaul, which would greatly limit the power of the country’s judiciary to oversee government policy, have aggravated mass protests across the country, which have been taking place for 29 weeks.

The Moody’s report came on the same day that US bank Morgan Stanley gave Israel’s sovereign credit a “dislike stance” due to uncertainty over the reforms.

Mr Netanyahu, who throughout his decades-long career has often been considered a champion of the business community, argued that despite such warnings, Israel’s economy remained strong.

“The security industries are bursting with orders. The gas industry is increasing exports to Europe and seven companies are now competing for tenders to explore for gas in Israel at an investment worth billions,” the statement read. It also listed other economic developments that the government viewed as positive.

Israel’s economy is heavily reliant on its high-tech sector and cyber industries and is often referred to as the “start-up nation”.

Fears are also mounting that the country’s advanced workforce is leaving because of the judicial overhaul and concerns that the government, the most right-wing in Israeli history, is set to pursue increasingly authoritarian policies.

A survey on Tuesday by Israel's Channel 13 found that 28 per cent of people were considering leaving the country. More than half said they feared a civil war over the legal reforms.

The now seven month long protest movement has increasingly caused day to day economic disruption as protesters block key highways and strikes have been growing from sector to sector.

On Tuesday, a senior official in Israel's main labour union told The National that his organisation has set in motion the process for calling a general strike if their demands are not met by the government.

“There have been national general strikes in the past,” Peter Lerner of the Histadrut union said.

“What is unique about this is that there is huge consensus not only within the world of labour but also within business. If this strike is done in concert with business organisations, it could therefore be of an unprecedented magnitude.

“The potential laws that [the government is] talking about would have a direct impact on workers.”

Mr Lerner also said co-ordinated industrial action would be part of a broader push for compromise, a call that President Isaac Herzog has long been making, warning that without dialogue, his country could be on the brink of civil war.

Mr Herzog said on Wednesday that he was “deeply disappointed” that his attempt to rally politicians to find a compromise had failed.

“If there’s the smallest chance, my team and I will continue to act in all possible ways to lower walls and build bridges,” he added.

Mr Herzog also pleaded with the increasing number of Israeli reservists that are refusing to turn up for volunteer duty in protest of the overhaul.

“You are truly the best of the best,” he said.

“But at the same time I fear for Israel’s security, which has been harmed by the threats of not volunteering or not appearing for service.”

Israel's military has long been propped up by its significance reserve forces. It maintains a relatively small standing army.

Members of elite units are expressing particular disquiet about the reforms.

They include unprecedented warnings from air force, special forces and cyber personnel that they would no longer serve.

Updated: July 26, 2023, 2:58 PM