Treasury chief economist warns on judicial reform risks

Shira Greenberg writes in the budgetary forecast that damaging state institutions may harm economic activity and in particular private investments.

Ministry of Finance chief economist Shira Greenberg has for the first time issued an official warning by the Ministry of Finance on the consequences of the government’s judicial reform plan.

Greenberg, who is responsible for the macroeconomic forecasts at the Ministry of Finance, referred to the judicial reform in the risks chapter of the 2024-27 budget forecast. “At the time of writing this document, procedures for substantial legislative amendments concerning the judicial system are taking place in the Knesset, and the legislation regarding them has not yet been completed. To the extent that the legal reform is perceived by the market as damaging the strength and independence of state institutions and increasing the uncertainty in the investment environment, this may harm economic activity in the economy and in particular private investments.”

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Greenberg stressed, “Studies in the economic literature have found a positive relationship between the strength and independence of state institutions and economic growth, the scope of private investments and in particular the scope of foreign direct investments and more. Also, the credit rating agencies may refer to these developments.”

Regardless of the political developments, the forecast sees a slowdown in activities and has cut its prediction for state revenues in 2023 by NIS 10 billion to NIS 437 billion. This would be a nominal 0.3% rise on state revenues in 2022 but a real fall of 3.5%, when updated forecasts for inflation are taken into account. The budgetary forecast for 2024-2027 sees a further fall in state revenues.

Published by Globes, Israel business news – en.globes.co.il – on February 23, 2023.

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