Hebron International warnings continue of the collapse of the Palestinian Authority as a result of the Israeli financial blockade, but yesterday the Palestinian government painted a different picture and expressed its confidence in financial improvement in the coming months.
The World Bank warned in late May that the Palestinian Authority faces the risk of a “collapse in public finances” with “the depletion of revenue sources” and a significant decline in economic activity, against the backdrop of the ongoing war on the Gaza Strip, since October 2023.
Later, on June 17, Norwegian Foreign Minister Espen Barth Eide pointed to the real possibility of the collapse of the Palestinian Authority in the West Bank, in a reiteration of fears expressed by the administration of US President Joe Biden about the possibility of the collapse of the Authority.
Official optimism
Palestinian Prime Minister Muhammad Mustafa, during his government’s weekly meeting yesterday, Tuesday, expressed his confidence “that the financial situation will see improvement in the coming months, with continued efforts for at least part of these funds to arrive during the next two weeks, so that the government can fulfill some of its obligations.”
He pointed out the continuation of work with a number of friendly parties “in order to secure the release of our funds that Israel is holding,” he said, and work in several paths to provide the necessary financial resources, and continued efforts with a group of Arab countries, some countries of the world and international financial institutions “to mobilize financial support.” For the public treasury.
He spoke of “a response from these parties and an understanding of the sensitive situation and its economic, social and security repercussions.”
Between the international warnings of the collapse of the Authority and the optimism of the Prime Minister, two experts who spoke to Tel Aviv Tribune Net paint an approximate picture of the financial situation of the Palestinian Authority, ruling out the collapse of the Authority while at the same time emerging from the neck of the financial crisis.
Why optimism?
Director of Research at the Palestinian Economic Policy Research Institute, Rabih Marar, says that Mustafa’s optimism is based on the meeting of donor countries in Brussels in late May and the financial payments that arrived from France, the European Union, and others in the form of direct support for the budget and not in the form of development projects.
During this June, the European Union announced that it would provide about $16 million to the Palestinian Authority, while France announced about $8.6 million, Britain about $12.6 million, and in May, Norway announced $9.45 million.
At their meeting on June 14, the leaders of the G7 industrial group welcomed the appointment of a new Palestinian government and affirmed their readiness to support the Palestinian Authority.
Marrar adds that the amounts that have been transferred or are about to be transferred – even if they are small – created an atmosphere of optimism because the Palestinian side felt that there was international and European acceptance for the new government, which was concerned about the possibility of it not being accepted internationally.
The Palestinian expert points out another factor, which is that leaders of the seven countries gave assurances to the Palestinian Monetary Authority that they would put pressure on the Israeli side to prevent Finance Minister Bezalel Smotrich from implementing his threats to stop Israeli banks from dealing in financial transfers with Palestinian banks.
Marrar believes that the United States, through the Treasury Department, has put strong pressure in this direction to prevent the collapse of the authority and the deterioration of the security situation in the West Bank, but he rules out a major change in the current and deteriorating economic situation, especially with the continuing crisis of workers preventing them from reaching their workplaces in Israel.
According to data from the General Federation of Palestinian Workers, about 225,000 Palestinians were working in Israel until October 7, with salaries estimated at about 1.3 billion shekels ($362 million), but most of them are now unemployed.
Marrar expects that the Palestinian Authority will continue to pay its employees reduced salaries by 50% in the coming months, as in recent months.
He pointed out that the Palestinian government was relying on clearance funds, which are tax revenues collected by Israel on behalf of the Authority at international crossings, at a rate of 70%, but today only about 50% of it is received from what was the situation before the Israeli deductions.
It is likely that the amount of clearance received from internal revenues covers only half of government revenues in a normal situation, and therefore is not enough to mainly pay salaries.
Regarding his estimates for the coming months, he said: “I do not think that anything dramatic will happen during the next three months. Only an end to the war and the integration of power can be relied upon if Israel agrees to reconstruction to revive the economy.”
Exorbitant debts
Economist Nasr Abdel Karim believes that the answer to the question about the reality of the Authority’s optimism depends on the development of political, security and field events in the Gaza Strip on the one hand, and the international community’s position on the Authority and the extent of pressure on Israel and the provision of aid on the other hand.
He added that the Palestinian Prime Minister may have sensed, in his trips outside the country, international understanding of the Authority’s financial crisis, and he based his optimism on European and Arab promises to provide aid and pressure on Israel to dissuade it from imposing sanctions on the Authority.
Abdul Karim rules out the possibility of the Authority being able to fully meet its financial obligations, and explains this with numbers, indicating that the dues for the last 8 months, whether for employees or the private sector, have reached very high levels, “and even if we assume the release of the clearance funds and financial dues, which are approximately 6 billion shekels (1.6 billion dollars), they do not meet all the dues owed by the Authority.”
He points out that employee salary arrears are estimated at about 6 billion shekels ($1.6 billion), and more than that are due to the private sector, explaining that “the authority’s public debt is estimated at about 11 billion dollars, including bank loans, or about 40 billion shekels.”
Therefore, the Palestinian expert reiterates his estimates that the clearance funds, if fully liberated, cannot cover the arrears that arose after October 7, “and therefore I expect the financial crisis to be resolved, not solved, in two cases: the presence of generous aid from countries, and the release of the clearance funds.”
He added: “This may take us back to before October 7, when the authority was not fulfilling all its obligations, and was paying 85% of salaries, while paying a portion of the rest of the dues of other sectors.”
He pointed out that the Authority’s budget deficit before October 7 and before 2023 amounted to one billion dollars annually, part of which was covered by international aid and the rest remained debt.
Abdul Karim does not prefer to use the term “collapse of authority,” which Palestinian and international circles have warned about, “because it has social, economic, political, and institutional connotations,” and he believes that the best term to describe the situation is “paralysis and faltering that deepens with time.”
He continued that the collapse of the authority means that it becomes completely ineffective or goes out of service, and this indicates a vacuum in the management of public affairs, but the international community expresses its concern for the existence of the authority and its continued performance of its obligations, and perhaps its integration into the reconstruction of Gaza.