One of the many implications of Prime Minister Benjamin Netanyahu’s dramatic firing of Defense Minister Yoav Gallant during the US presidential election on Tuesday is the concerning economic signal it sends.
As War has slammed the country’s economy, Israel has been fighting to maintain its image as a good place for investors to put their money. Growth has slowed dramatically, the country’s debt has swelled, and the government has floundered in its attempts to legislate and enact countermeasures.Global concerns about the economic impacts of the war and its implications for the economy have been reflected in downgrades of Israel’s sovereign rating by all of the Big Three credit rating agencies.
The firing of Gallant projects instability at a time when Israel must project stability to investors. In some sense, it is an affirmation that the priorities of Israel’s political echelon put the coalition’s stability ahead of all else.These signals are the opposite of those Israel wants to send to investors and economic professionals at this time.
Gallant's firing reinforces growing risks
In justifying its September downgrade of Israel to the country’s lowest-ever credit rating, Moody’s noted that “indications of higher domestic risks include tensions between the government and security services” and highlighted the delay of the haredim (ultra-Orthodox) draft bill as another source of domestic risk.Gallant said that one of the reasons that he was fired was due to his opposition to a bill that would exempt the haredi from the draft. This only reinforces the idea that these risks are real and growing.Just last week, the government approved a budget full of last-minute concessions to measures meant to tackle the economic impacts of the Israel-Hamas War.Rather than approving a planned freeze on all government stipends, the government decided to hike the National Insurance tax. The approved budget was also criticized as prioritizing coalition needs over economic ones. It was also passed late, with Finance Minister Bezalel Smotrich admitting that the 2025 budget will likely not pass through the full Knesset by the end of the calendar year.These show the continued prioritization of the coalition above all else – including the economy – and the challenges to passing real economic measures made necessary by the war.Gallant’s firing also reinforces fears surrounding the status of Israel’s democracy. The idea that ministers who stand against the coalition when they think it is necessary are fired reaffirms fears that a tiny majority can lead the country in any direction they decide.In its September downgrade, Moody’s changed Israel’s governance score from G-1 to G-2 “to reflect the deteriorating institutional strength and governance.”“The government has not laid out an exit strategy from the military conflict that would help to restore a level of certainty and security, on which the economy and business investment ultimately rely,” Moody’s added.The credit ratings agency also pointed to the fact that Israel’s civil society, a significant check on the government during the planned judicial overhaul, has shown a weaker ability to provide checks and balances than expected.Gallant being fired will likely be another affirmation of this, as the mass protests that broke out around the country after this have not overturned the decision.The labor federation also refrained from calling a general strike, as opposed to after the first “Gallant night” protests, further reducing pressure on the political echelon to walk the firing back.