IMF warns Israel that plans to weaken judiciary poses great danger to economy

The International Monetary Fund (IMF) warned Israel, on Wednesday, that the proposed “judicial amendments” pose a significant risk to the economy that could tighten financial conditions and hinder investments, consumption and long-term growth.

The IMF said in a statement, issued at the conclusion of its team’s mission in Israel, that it should reduce uncertainty surrounding the “reforms” with a “politically sustainable solution that is clearly communicated and well understood both domestically and abroad.”

The Netanyahu government had initiated legislation to weaken the judiciary, aiming to limit the power of the Supreme Court by issuing rulings on members of the legislative and executive branches, and to give itself (the government) more powers in appointing judges.

This sparked protests in Israeli towns, including central demonstrations on a weekly basis in Tel Aviv, in addition to the concern of many countries about the consequences of the plan and its harm to democracy.

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Netanyahu said, earlier, that the amendments are aimed at achieving a better balance between the different government authorities, but agreed to postpone the “amendments” in an attempt to negotiate a compromise.

The IMF said, “Absent the emergence of a durable and politically sustainable solution, continued uncertainty could significantly increase the price of risk in the economy, tightening financial conditions and hindering investment and consumption, with potential repercussions for growth, also in the longer term.”

“As in any country, maintaining strength of the rule of law would be important for economic success,” it added.

These comments come after Moody’s Investors Service lowered its Israel’s A1 sovereign credit rating outlook to stable from positive last month, citing the reforms.

The IMF praised Israel for its economic policies and management, saying that its GDP growth would slow to 2.5 per cent in 2023, compared to its “remarkable” 6.5 per cent growth in 2022. It added that “public debt-to-GDP fell rapidly to pre-covid levels, international reserves are ample, the external position is strong and the banking sector has adequate capital and liquidity buffers.”

The IMF said, regarding Israel’s monetary policy, “With a tight labour market, positive output gap and headline inflation above the target range, the policy stance should remain tight.”

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