IMF hails ‘remarkable’ Israeli economy, warns overhaul uncertainty may harm growth

The International Monetary Fund on Thursday praised Israel’s “remarkable economic performance” in 2022, but warned that “uncertainty” over controversial judicial reforms may harm growth.

After GDP increased by 6.5 percent in 2022, growth will likely “slow down this year as it returns to potential over the medium term,” the IMF’s Executive Board said in a statement released as part of an annual appraisal of the country’s economy.

According to the IMF’s forecast, growth is expected to fall to 2.5% this year.

The slowdown is caused by several factors including high inflation — 5% in 2022 — and the right-wing government’s controversial legal overhaul plans, which have brought hundreds of thousands of protesters onto the streets of Tel Aviv and other cities.

“Uncertainty created by the proposed judicial reform could have a negative impact on the economy,” the IMF said, calling for a “politically sustainable solution.”

On Wednesday, two main opposition leaders, Yair Lapid and Benny Gantz said they were suspending their participation in negotiations to find common ground on the reforms, citing the government’s failure to form and convene the country’s judge selection panel.

Yesh Atid party leader Yair Lapid, left, and party MK Karine Elharrar during a joint press conference at the Knesset in Jerusalem, June 14, 2023. (Yonatan Sindel/Flash90)

The decision was made after a dramatic Knesset session to elect two representatives on the Judicial Selection Committee, which Prime Minister Benjamin Netanyahu tried to delay for a month by voting down all candidates.

The opposition’s candidate Yesh Atid MK Karine Elharrar was voted in as one of two Knesset representatives, while the only other name on the ballot, the ruling Likud’s Tally Gotliv, was defeated soundly after she threw the coalition into a tailspin by refusing to pull her maverick candidacy. Elharrar’s victory served as a major political embarrassment for the ruling bloc and Netanyahu, as at least four coalition members broke ranks to vote for her.

Gantz and Lapid maintained that Netanyahu had committed in the negotiations to convene the Judicial Selection Committee in June and the failure to fill the Knesset’s second spot on the panel means it won’t be able to meet for at least another month until the make-up vote is held.

Netanyahu’s coalition argues the overhaul is needed to introduce further checks on the power of the judiciary, while critics say the reforms are a threat to Israel’s democracy.

Leading economic thinkers have spoken out against the reforms, while senior figures in the high-tech industry, a flagship of Israel’s economy, have played key roles in the protest movement.

Times of Israel staff contributed to this report.