The IMF added that Israel's monetary policy stance should remain tight given a tight labor market and headline inflation above the central bank's target range. (Reporting by David Lawder and Steven Scheer; Editing by Alex Richardson)
david.lawder.thomsonreuters.com@reuters.net)) (Adds details on Israeli judiciary proposals)
By David Lawder and Steven Scheer
May 10 (Reuters) - The International Monetary Fund on
Wednesday flagged Israel's proposed judiciary reforms as a
significant downside risk to the economy that could tighten
financial conditions and hinder investment, consumption and
long-term growth.
Israel needed to permanently reduce uncertainty around the
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.
Prime Minister Benjamin Netanyahu's hard-right coalition
government has proposed sweeping changes that would limit the
Supreme Court's power to rule against the legislature and the
executive branch, while giving ministers more power in
appointing judges.
The plan has sparked domestic protests and caused alarm
among Israel's Western allies over its potential to weaken the
rule of law.
Netanyahu says the reforms are seeking a better balance
between the different branches of government, but has agreed to
delay the overhaul to try to negotiate a middle ground.
"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.
It added: "as in any country, maintaining strength of the
rule of law would be important for economic success."
The comments come after Moody's Investors Service last month
lowered its Israel's A1 sovereign credit rating outlook to
stable from positive, citing the reforms.
The IMF review gave Israel strong marks for its economic
policies and management, saying that its GDP growth would slow
to 2.5% in 2023 from "remarkable" 6.5% growth in 2022. It added
that public debt-to-GDP levels had returned to pre-COVID levels,
its international reserves were ample, and its banking sector
had adequate capital and liquidity buffers.
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