Moody's, the global credit rating giant, announced a downgrade of Israel's outlook from "positive" to "stable" on Friday night, citing "deterioration of Israel's governance."
Nationwide protests broke out across the country after the proposed changes to the judiciary were announced some three months ago. They have persisted on a weekly basis, often causing major disruptions to the economy and according to some high-tech companies, the draft legislation has had an adverse effect on their ability to draw investors.
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The outlook could mean that Israel will have to pay higher rates to potential borrowers and some funds could be dropped from the nation's sovereign bonds.
In the explanation of the decision late Friday, Moody's wrote: "The change of outlook to stable from positive reflects a deterioration of Israel's governance, as illustrated by the recent events around the government's proposal for overhauling the country's judiciary."
Prime Minister Benjamin Netanyahu suspended the legislative process for the reform in late March amid widespread protests, but the measures are likely to come up to a vote when the Knesset comes back from recess later this month. Finance Minister Bezalel Smotrich told Israel Hayom several weeks ago that the reforms will go ahead even if the talks with the Opposition on possible compromise reach a dead end. He also said Israel's economy was one of the strongest and most stable.
Opponents claim the judicial reform bills would grant the ruling party unbridled power by effectively having the ability to override the Supreme Court by a simple majority since governments usually have a majority coalition in Knesset.
Supporters of the measures say they will balance the power of the judiciary, executive, and legislative branches, bringing Israel more in line with other democratic nations.
The reforms also propose limiting the authority of the High Court to intervene in government appointments and policies, transferring control over the judicial selection committee to the government, and curtailing the authority of government legal advisers.
