A major banking institution has warned investors that the judicial reforms sought by the government of Benjamin Netanyahu could lead to a downgrading of the nation's credit rating.
The investment bank JP Morgan, published between Thursday and Friday night an official review of the Israeli market in light of the judicial reforms that the Netanyahu government is trying to lead, as well as the recent terrorist attacks that raised tensions in the security arena.
According to the review, the legal reforms could lead to effects on growth and the downgrading of Israel's credit rating, similar to what happened in Poland. "The markets in Israel have gone into turmoil due to a unique risk arising from increasing geopolitical tensions added to concerns stemming from the government's plans to carry out legal reforms," ​​write the analysts at the European Emerging Markets desk of the American investment bank.
JP Morgan released this report on investing in Israel that was sent to investors & customers around the world laying out bank's official position
— Ari Ingel (@OGAride) February 3, 2023
They note risk of investments in Israel increases due to proposed judicial reforms & warn about fear of damage to Is credit rating. pic.twitter.com/TQ4oq4jE7k
"The legal reform has raised concerns regarding the strength of institutions and the investment climate in the country. Any deterioration in the strength of institutions can affect investments, however, it is difficult to assess its strength and timing," they add.
Unlike many headlines, attempting to inflate the fiscal dangers for political gain, J.P. Morgan emphasized: "there is also a risk of a decrease in the credit score of the State of Israel, but J.P. Morgan expects that such an effect will be limited."
Per @calcalist report, @jpmorgan joined @SPGlobalRatings in warning about a possible hit to #Israel’s credit rating as a result of #Netanyahu’s proposed coup (a.k.a judicial reform)
— Democrats in Israel (@DemocratsIL) February 3, 2023
Israel MUST remain a democracy!!
Join the protests in Israel and abroadhttps://t.co/atLv7l07nh
It also states that "the articles of the proposed reform are interpreted as an attempt to weaken the checks and balances of the system, as well as the controversy within the country. These tensions are expected to intensify as the plan progresses, which, according to reports, is expected to pass by the end of March. Despite the attempts to oppose the reform, Prime Minister Benjamin Netanyahu showed faint signs that the government under his leadership would withdraw from the proposed reforms."
One of the potential consequences indicated by JP Morgan, similar to what happened in Poland, is the reduction of the country's international credit score. In this context, the bank notes the downgrading of Poland's rating by the international rating agency S&P in January 2016 from A minus to BBB plus. According to JP Morgan, the reaction of the currency market was a devaluation of the local currency against the euro and an increase in the prices of medium-term credit insurance.
JP Morgan warns of heightened “idiosyncratic risk” in Israel due to judicial reform agenda & geopolitical tensions. Closest comparison is Poland 2015 and Chile mass demos 2019 https://t.co/qqLTfb8Z6j
— Neri Zilber (@NeriZilber) February 3, 2023
Nonetheless, it should be noted that while the judicial reforms proposed by the Netanyahu government may have similarities to the ones passed in Poland, Israel’s economic status is currently far superior to Poland’s based mainly on its industrious technological and military sectors, making any comparison to Poland out of touch.
