Israel's judicial reforms are risk for economy, IMF warns
Israel’s proposed judicial reforms pose a downside risk to the economy, tightening financial conditions and hindering long-term growth, the International Monetary Fund (IMF) has warned.
In order to not risk the economy, Israel should maintain a strict monetary policy stance given a tight labour market and headline inflation above the central bank's target range, the IMF said.
Israel also needs to permanently reduce uncertainty around reforms with a "politically sustainable solution that is clearly communicated and well understood both domestically and abroad", the IMF said in a statement issued at the end of an "Article IV" staff mission to Jerusalem on Wednesday. Under Article IV, the IMF holds bilateral talks with members, usually annually.
Israel's economy is expected to grow 2.5 percent in 2023, down from 6.5 percent last year, as household purchasing power moderates and firms rein in investment, the IMF said in the preliminary findings.
"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," the IMF said.
“As in any country, maintaining strength of the rule of law would be important for economic success."
Since being reelected late last year to head the most far-right coalition in Israel's history, Israeli Prime Minister Benjamin Netanyahu has been pursuing changes to the judiciary that would give his government greater sway in selecting judges and limit the power of the Supreme Court to strike down legislation.
Netanyahu's government, a coalition between his Likud party and extreme-right and ultra-Orthodox allies, argues the changes are needed to rebalance powers between lawmakers and the judiciary.
The proposed reforms caused weeks of domestic protests, with thousands of people rallying into the night.
Reforms would 'weaken' independence of judiciary
In January, dozens of prominent American legal scholars from several leading law schools signed a public statement voicing deep concerns about the proposed changes to Israel's judicial system.
In the statement, more than 70 US law professors said the proposed reforms "will seriously weaken the independence of the judiciary, the separation of powers and the rule of law in Israel".
In early March, a group of nearly 100 Democratic lawmakers warned US President Joe Biden that the actions of Israel's far-right government are undermining the US-Israel relationship.
The 92 lawmakers sent a letter to the US president saying the proposed changes to Israel's judiciary would "jeopardize Israeli democracy, which in turn would undermine the very foundation of the US-Israel relationship".
On 19 March, Biden told Netanyahu that democratic values were a hallmark of US-Israeli ties and said he supported finding a compromise over a highly contested judicial overhaul.
Netanyahu, according to his office, assured Biden that Israel's democracy was healthy.
On 27 March, Prime Minister Benjamin Netanyahu announced a "pause" to allow for dialogue on the reforms which were moving through parliament and that split the nation.