Israel’s judicial reform controversy is continuing to drive concerns about the Israeli economy, prompting warnings from leading credit rating agencies. While Israel’s economic fundamentals remain strong, one expert told Al-Monitor that Israel’s long-term outlook is dependent on future political developments, relations with the Jewish diaspora and other factors. 

Background: On Wednesday, the New York-based credit rating agency Fitch affirmed Israel's “A+” rating and said its outlook on the country is “stable,” meaning Fitch is confident in Israel’s ability to meet its financial obligations. Fitch noted Israel’s strong gross domestic product growth rate of 6.4% in 2022 and declining debt, and predicted inflation will slow to 3% by the end of this year, according to a press release. 

At the same time, Fitch warned that the Israeli government’s judicial reform efforts could “weaken” the country’s credit profile. 

"Fitch believes the reform could have a negative impact on Israel's credit profile by weakening governance indicator or if the weakening of institutional checks leads to worse policy outcomes or sustained negative investor sentiment,” said the firm.