The World Bank is calling for an urgent solution to the Palestinian economic crisis, which it blames in large part on Israel’s withholding of the tax and tariff revenue it collects monthly on behalf of the Palestinian Authority. Transfer of the funding is often withheld by Israel as a punishment for a Palestinian policy or action, thus inflicting a severe blow to the PA’s public finances.
The crisis was detailed in a report released on Wednesday, that will be submitted to the Coordination of Assistance to the Palestinian People Committee at its next meeting in Brussels on April 30.
World Bank acting director Anna Bjerde, who serves as the organization’s Resident Representative in the West Bank and Gaza and director of Strategy and Operations for the Middle East and North Africa, was quoted in the report, explaining the status of the Palestinian economy.
“The economy, which did not see real growth in 2018, now faces a severe fiscal shock,” Bjerde said, “so it’s necessary to find a solution urgently to prevent further deterioration of economic activity and living standards.” In addition, she affirmed that the clearance revenues are a major source of the PA’s public budget income. In that regard, all sectors of the population feel the effects of the crisis.
In July, the Israeli cabinet approved a law that slashes funds to the PA in the amount equivalent to what the Palestinian Liberation Organization (PLO) – the dominant umbrella group that speaks for the Palestinian people – pays to Palestinian security prisoners and the families of those who died in clashes with Israeli soldiers often in an act of violence. In February, Israel deducted some $138 million from the tax revenues it collects on behalf of the PA. The rationale behind the move is to “reduce attacks carried out by Palestinians.”
These amounts form 65 percent of the PA’s total monthly revenues.
Azmi Abdul Rahman, the spokesperson for the PA’s Economy Ministry, told The Media Line that based on the Paris Protocol – an economic agreement providing implementation for the 1993 Oslo Accords between the PA and Israel – the collection of these amounts was to be independent of politics. “Israel charges 3% of the funds to collect this money on behalf of the PA; but it has absolutely no right to deduct from the funds for any reason,” Abdul Rahman said.
“Now, with the Israeli government hijacking these amounts illegally, there is a shrinking in the Palestinian economy,” he said. He explained that the Palestinian leadership could not pay more than half of its workers’ salaries for the past two months.
In addition, he said, the PA cannot pay its commitments to the private sector or its operating costs.
“More than 50% of the Palestinian people are committed to monthly payments for loans. After that, whatever the PA sends them, goes to the bank,” Rahman elaborated. He stressed that what is really dangerous is that the average Palestinian citizen doesn’t dare to plan for the near future, which has a negative effect on the political, social and security arenas.
“The social situation is bad; accordingly, the security situation will be affected,” he said.
By contrast, both Israeli and American officials are holding the PA responsible for the crisis, highlighting numerous warnings that the actions of the West-Bank based government of Mahmoud Abbas could result in punitive measures.
In this respect, the PA president imposed a blanket boycott on the Trump Administration following its recognition in December 2017 of Jerusalem as Israel’s capital. Moreover, the Palestinian leader has repeatedly rejected out of hand the White House’s two-years-in-the-making peace proposal.
Meanwhile, in Israel there is near-across-the-board support for suspending the transfer of funds that the PA would otherwise disburse to security offenders.
Irrespective, the circumstances have forced the PA to reduce spending on social assistance, while increasing borrowing. The World Bank report affirms that if this crisis is not resolved, the budgetary deficit will increase from $400 million in 2018 to more than $1 billion in 2019.
Samer Abdullah, a Palestinian economic analyst, asserted that the Palestinian economy is in the worst position ever and attributed the decline since 2012 to a lack of natural and financial resources.
“The Oslo Agreement gives the Palestinian side a very small percentage of the resources, which is now depleted,” he said. Abdullah told The Media Line that the Palestinian economy shifted from being a prosperous and growing entity in the 1990s to one that is merely surviving.
“The new setback is Israel’s taking a deduction from the tax money,” he said. He then stated that Palestinians consider the Israeli move a form of collective punishment that increases their suffering.