Over the recent months, Israel has been in nothing short of a political thunderstorm that had a rippling effect that impacted its very core. The controversial “judicial reform plan” as it’s officially called, spearheaded by Prime Minister Benjamin Netanyahu, and propelled by extremist members of its coalition, has sparked widespread protests, and has led to major doubts about the country's financial and economical future.
As a result of this turmoil, a growing number of wealthy Israelis, businesses, and startups are moving their money out of Israel, either keeping it in foreign currency or transferring it to overseas banks.
The proposed judicial reform, over perhaps better put as “overhaul”, has been a contentious issue, with critics arguing that it threatens the democratic norms of the country. The plan seeks to curb the power of the Supreme Court which is perceived (by the current Israeli government) to have a left-wing bias. The proposed changes have sparked the country's largest-ever protest movement, with unexpected pressure coming from the tech sector and military reservists.
The political uncertainty has had a profound impact on the Israeli shekel. The currency depreciated by 2.6% against the US dollar in May and has weakened by 6% against the dollar since the beginning of the year. The shekel's slide continued into June, with the currency trading at levels not seen since the onset of Covid back in March 2020. This depreciation is fueling inflation in Israel and could result in more rate hikes, according to Bank of Israel Governor Prof. Amir Yaron.
In context, the Israeli shekel has been one of the best performing currencies of the past decade, and the Israeli economy, bolstered by its highly successful startup companies, has been considered one of few safe havens for foreign investors. That is all in spite of its ever-growing military threats.
The weakening shekel and political instability have led to a significant shift in the financial behavior of wealthy Israelis and businesses. Some individuals, and businesses, are planning to move their business abroad, others are just hedging against further declines in the shekels which will prevent them from succeeding in the global market.
For instance, Papaya Global, an Israeli unicorn that has developed a payroll management platform for employees of global companies, announced that it is moving all its money out of Israel due to the judicial reform. CEO Eynat Guez stated that the reform has created uncertainty about conducting international economic activity from Israel.
The political uncertainty has also led to predictions of foreign investor capital exiting Israel. Wells Fargo Securities emerging markets economist and FX strategist Brendan McKenna stated that if governance deteriorates amid the judicial overhaul and other political priorities, foreign investor capital is expected to exit Israel.
The current situation has led Goldman Sachs to cut its shekel forecast for the short to medium term over concerns that the ongoing judicial overhaul saga will adversely affect the Israeli currency. Over the next three months, Goldman Sachs expects the shekel to remain around the NIS 3.70/$ mark and thereafter over the next year around NIS 3.60/$.
Amid Israel's financial turbulence, UK-based fintech giants Wise and Revolut are capitalizing on the situation and offering even more ways to transfer money from Israel internationally. Wise, available to Israelis since 2017, offers a cost-effective way to send money abroad, a service increasingly valuable in the current climate. Revolut, also eyeing the Israeli market, could provide additional options for Israelis seeking to safeguard their wealth. As political uncertainty continues to impact Israel's economy, these fintech companies are poised to play a significant role in facilitating the outflow of money from the country.
The political and economic instability in Israel has raised concerns about the country's future. The exodus of wealth and the weakening shekel are indicative of the profound impact of the political uncertainty on the country's economy. As the debate over the judicial reform continues, the financial landscape of Israel remains in flux, with the potential for further significant changes in the coming months.
This article was written in cooperation with Money Transfer Comparison