Moody visits 'substantial risk' surrounding Israel's thrift

July 31, 2023: Moody’s Investors Service cautioned that “negative consequences” and a “significant risk” loom over Israel’s economy after passing a law curtailing the Supreme Court’s powers.

The measure passed by a final 64-0 vote on Monday removes the “reasonableness” requirement that allows the unelected Supreme Court to overrule the government’s decisions. The development has triggered mass protests, getting tens of thousands of demonstrators into the streets earlier this week.

“We believe the wide-ranging nature of the government’s proposals could materially weaken the court’s independence and disrupt effective checks and balances between the various branches of government,” Moody said in Tuesday’s statement.

The agency added that Israel’s executive and legislative institutions have become “less predictable and better willing to create significant risks to economic and social stability.”

The report cited that more than 80% of new Israeli startups chose to register overseas since the start of this year, compared to 20% last year.

“This is especially concerning given that the country’s high-tech sector has become the key engine of economic growth,” Moody’s analysts wrote, adding that the sector accounts for half of the country’s total exports and generate around 15% of the country’s GDP in 2022.

A report by Israeli private equity investment group Viola stated that Israel ceded its ranking as the world’s fifth best-funded tech ecosystem to take 10th place instead.

In a joint statement, Israel’s Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich said that Moody’s report “is a momentary reaction; when the dust settles, it will become clear that Israel’s economy is robust.”

They added, “Israel’s economy is based on solid foundations and will continue to grow under experienced leadership that leads a responsible monetary policy,” elaborating that the defense industries are “bursting with orders” and that the gas drive is increasing exports to Europe.