Fitch could raise Israel's rating if reforms halted

• Published date: 30 May 2023

But after the complements on Israel's economic strength, Fitch expresses reservations about raising the rating and makes it clear it is dependent on halting the government's judicial overhaul. Fitch writes, "Israel continues to face high levels of internal social and political tension, and the advancement of certain policies favored by the governing coalition could aggravate these strains and influence the sovereign rating."

Fitch adds, "Prime Minister Benjamin Netanyahu said after the budget's passage that judicial reform will return, but the coalition's exact proposals remain unclear."

Fitch meanwhile is giving a change to the compromise talks held by President Isaac Herzog but repeats its warning from last March that the repercussions of a failure to reach broad consensus will result in chaos if the legislation moves forward unilaterally. Fitch writes, "Judicial reform has the potential to have a negative impact on Israel's credit profile if it weakens governance indicators, or if the weakening of institutional checks leads to worse policy outcomes or sustained negative investor sentiment."

London-based Fitch also mentioned the state budget passed last week, which included large additions for the haredi parties. Fitch writes, "The 2023-2024 budget, which was approved on 24 May, projects a relatively large rise in spending, averaging 5.7% a year. This partly reflects the impact of high...