Israeli Economic Reforms Await Approval Amid Political Uncertainty Before Knesset Dissolution
Israel is approaching its 26th Knesset elections scheduled for October 27, following the first reading approval of the dissolution bill earlier this month. Political uncertainty clouds the timing of early elections, and once the Knesset is officially dissolved, advancing significant legislation will require broad consensus in a special committee of coalition and opposition members. Meanwhile, several key economic reforms remain pending, with their fate uncertain as the political clock ticks down.
Among the major legislative initiatives is the establishment of a credit data repository for small and medium-sized businesses, promoted by the Bank of Israel and the Finance Ministry. This database aims to consolidate financial information to enable non-bank lenders to better assess borrower risk, potentially saving businesses an estimated 1.5 billion shekels annually. Although the reform passed second and third readings in the Economics Committee in May, it has yet to be voted on by the full Knesset, with Bank of Israel urging swift approval.
Another awaited reform is the regulation of Israel's securitization market, which would create a legal framework for bundling illiquid assets into tradable securities. The bill, based on a 2015 interministerial team report, passed a first reading in May but is unlikely to advance before the Knesset dissolves.
Corporate governance reforms for publicly traded companies without controlling shareholders were approved by the Constitution Committee in March. These require a majority of independent directors and special approvals for transactions with significant shareholders, affecting about 15.7% of Tel Aviv Stock Exchange companies, including major banks and corporations.
The innovative hedge fund trusts launched in 2023, managing around 6 billion shekels, face an uncertain future as their enabling temporary regulation cannot be renewed beyond April 2027 without new legislation. The Finance Committee is debating the bill amid opposition from the Bank of Israel, which warns of financial stability risks.
Additional pending legislation includes a broker-dealer licensing law to regulate financial intermediaries and attract international players, and a metropolitan authorities law to decentralize public transportation management to regional bodies in Tel Aviv, Jerusalem, and Haifa. Both await final Knesset approval.
Private initiatives such as a proposed 1% VAT reduction and a mortgage subsidy plan have also been introduced but face obstacles and are unlikely to be enacted before elections. The political stalemate leaves these economic reforms in limbo, with their implementation dependent on the post-election parliamentary landscape.
