Palestinian authority is facing a financial collapse

The Palestinian Authority (PA) is currently facing a critical financial crisis, severe enough to threaten its very existence.

Suffering is deepening in Palestine as its economy continues to deteriorate, poverty levels rise, unemployment increases and the environmental toll of occupation rises rapidly.

For months, the PA government has been struggling to meet its obligations to contractors and is facing continuous difficulty in paying its employees and workers while rumors spread every month that wages might be delayed.

Although the private sector had become the main lender to the PA, today there is simply no more cash as the banks have reached their limits.

Last month PA Finance Minister Shukri Bishara said during a virtual meeting with international donors that government borrowing from banks “is no longer an option due to the limited liquidity conditions of the Palestinian banking sector.”

Bishara also warned “of a bleak future if finances with Israel are not set straight.” He called on the international community to assist the PA in settling their outstanding financial files with Israel. This would save it over $500 million annually, and help it avoid a financial collapse in light of the decline in international grants and the Palestinian economy reaching the limit in generating domestic revenues.

Among these files is the exemption from the accumulated fee for departing travelers that have accumulated since 2008, as Israel is currently withholding about 740 million shekels ($225 million).

Also, reducing the commission that Israel collects in return for collecting the Palestinian clearance funds from 3 per cent to 1 per cent, and more transparency in Israeli deductions for services (water, electricity, sanitation, and health) is in order.

Bishara added that the total amount of these deductions in 14 years amounted to $10 billion.

The Palestinians also called on Israel to release the deductions that have been withheld unilaterally from the clearing proceeds since 2019, an accumulated amount of 810 million shekels ($247 million) of money the PA had allocated to the families of individuals killed in combat, prisoners and the wounded.

Among the pending files are also taxes and fees on fuel purchases from Israel, as the PA demands tax exemption from the Israeli fuel-providing company that amounts to about 40 per cent of the monthly clearance revenues of the PA.

Bishara said that not paying this percentage would allow PA to save up to $82 million per month in cash flow.

Bishara warned of a rise in the government's financial difficulties after a series of crises over the past three years at a time when donor aid is close to zero.

Bishara considered that all the government's financial reform initiatives, despite their importance, "will not help in addressing or reversing the structural obstacles that are a direct and absolute result of 55 years of continuous military occupation."

He added, "There is a limit to what we can do in terms of rationalizing spending, and this is given the fact that we only have pro forma operational control over 20 per cent of the occupied Palestinian territory while bearing the associated expenditures for 80 per cent of what is left of it."

In this context, Bishara said that the government's spending on the Gaza Strip is 35 per cent of the total general spending, without any revenue generation.

The government bears significant costs incurred in East Jerusalem, especially with regard to the Arab medical facilities as most of them deal with referrals of Gaza patients. They also have to provide support to the Jerusalem Electricity Company, which constitutes about 4 per cent of the operating budget, without recovering the costs.