Israeli leaders rebuff Moody's outlook cut, protests persist

3/3 © Reuters. An aerial view shows people during a demonstration against Israeli Prime Minister Benjamin Netanyahu and his nationalist coalition government's judicial overhaul, in Tel Aviv, Israel, April 15, 2023. REUTERS/Ilan Rosenberg 2/3

JERUSALEM (Reuters) -Israel's government on Saturday rebuffed an outlook downgrade on the country from credit ratings agency Moody's (NYSE:MCO), while tens of thousands of Israelis returned to the streets to protest against a planned overhaul of the country's judiciary.

Moody's report issued on Friday marks the latest warning about a potential economic backlash to Prime Minister Benjamin Netanyahu's legislative push.

The move includes giving politicians greater sway on selecting judges and limiting the power of the Supreme Court to strike down legislation.

Moody's affirmed Israel's sovereign credit rating at "A1", while revising its outlook to stable from positive.

"Israel's economy is stable and solid and with God's help will remain so," Netanyahu and his finance minister, Bezalel Smotrich, said in a joint statement.

They said the concerns raised by Moody's are "natural for those unfamiliar with the strength of Israeli society".

At the same time tens of thousands of Israelis again gathered in Tel Aviv and other cities in intensifying weekly protests, waving flags, banging drums and blaring horns.

They worry the proposed changes will weaken the courts and endanger civil liberties.

Moody's, summing up the months of turmoil since Netanyahu returned to power late last year at the head of a religious-nationalist coalition, said Israeli institutions were less predictable given the government's handling of events.

"The wide-ranging nature of the originally proposed changes and the speed with which the government attempted to push them

through ...without an attempt to achieve broad consensus point to a weakening of institutions," the agency said.

Netanyahu, under pressure at home and abroad, has agreed to delay the overhaul to try to negotiate a middle ground, but Moody's, echoing opposition lawmakers in Israel, said: "It is far from clear whether a compromise can be found."

On the upside, it said, the country's positive economic and fiscal trends remain, should a solution be reached.

Israel's central bank and senior Finance Ministry officials have warned that the judicial overhaul might impact investor sentiment and hurt the economy.

Critics, who range from the business elite to former military officers, say the overhaul will hurt democracy and hand uncontrolled powers to the government of the day.

Netanyahu, who is on trial on graft charges he denies, says the changes are needed to rein in activist judges who have interfered in political decision making.

Israel's economy grew a faster-than-expected 6.4% in 2022, although growth is expected to fall below 3% this year amid steep central bank interest rate hikes aimed at battling high inflation.