Isranomics

Fitch reaffirms Israel’s credit rating but remains concerned about judicial reform and increased public spending

by | Mar 1, 2023 | Economy | 0 comments

Fitch, the international ratings agency, has reconfirmed Israel’s A+ rating and stable outlook, but expressed concern about the government’s planned judicial reform and the independence of the central bank. In assessing Israel’s economy, Fitch noted a high debt-to-GDP ratio, security risks, and unstable governments that have hindered policymaking.

The government’s latest push for judicial reform, which aims to limit the Supreme Court’s powers and give the government majority in the Knesset more power over legislation and judge nominations, has been met with strong opposition and is being closely monitored by the investment community and international financial institutions. Fitch warns that the reform may harm Israel’s credit rating by weakening governance or resulting in poor policy outcomes.

Furthermore, the international rating agency noted the return of budget deficits as a result of sluggish revenue growth, rising spending pressures, and higher public-sector wages.

Despite global challenges and monetary policy tightening that will likely impact private consumption and investment, Fitch anticipates Israel’s GDP growth to remain robust at 2.9% this year. Growth will be supported by continued high-tech and defence exports, strong population growth, and increased government spending once a budget is in place. In 2024 and 2025, the agency expects growth to return to its long-term potential of more than 3%.

Israel’s Minister of Finance, Bezalel Smotrich, expressed confidence in Israel’s economy and stated that the credit rating proves that the government is taking the right steps to push the country forward.

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