The PA's budget woes: A 'political' financial crisis

A Palestinian street vendor waits for customers in the West Bank city of Ramallah on October 5, 2021
5 min read
West Bank
16 November, 2021
Analysis: The PA has announced that it is going through its worst financial crisis in years, partly due to a shortfall in foreign aid. However, the economic fallout has much more to do with Israel's policies.

The Palestinian Authority (PA) urgently needs $400 million to be able to provide services until next March, a planning advisor to the PA said on Sunday, as fears grow of an imminent financial collapse.

Dr Estephan Salameh told local Palestinian media that “the Palestinian government is going through the worst crisis in a long time”.

On Monday, he reiterated to The New Arab that "the crisis is partially due to the interruption of financial aid from international donors, especially the European Union, which hasn’t sent any aid at all to the PA for the year 2021”.

"The PA has suffered a prolonged economic crisis for years and is heavily dependent on donor aid from the EU, the US, and Arab countries to stay afloat"

A report published last week by the Office of the United Nations Special Coordinator for the Middle East Peace Process (UNSCO) said the economic and fiscal situation in the occupied Palestinian territories remains “dire”.

The PA has suffered a prolonged economic crisis for years and is heavily dependent on donor aid from the EU, the US, and Arab countries to stay afloat.

According to Salameh, European aid to Palestine numbers around $686 million, including aid to the UNRWA agency for Palestinian refugees and development projects.

The public budget's share of European aid is about $320 million, representing around 8.2% of the total, which was announced by Palestinian PM Mohammad Shtayyeh back in March at around $3.9 billion.

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The EU's spokesperson in Jerusalem, Shadi Othman, told TNA’s sister publication Al-Araby Al-Jadeed last week that aid to the PA has stopped “for reasons specific to the EU, which have caused aid to stop in other regions as well".

The impact has been felt across the public sector, with the PA likely to cut civil servant salaries to cover deficits.

UNRWA, meanwhile, has said it faces an "existential" crisis, with the agency’s ability to keep 550,000 children in school, provide health care for thousands, and pay the salaries for its 28,000 staffers in November and December under threat if the aid shortfall is not covered soon.

According to Othman, the EU will resume its aid to the PA in the coming months. However, he added, “the real solution to the PA's crisis remains the return of Palestinian tax money by Israel”.

Tax money retained
 

The EU spokesperson was referring to the import taxes collected by Israel on behalf of the PA. According to the Paris economic protocol, signed in 1994 between Israel and the PLO, Israel, being in control of all border crossings, is responsible for collecting import taxes and transferring them to the PA, keeping a 3% commission.

In recent years, the Israeli government has retained large amounts of Palestinian taxes, causing much of the PA’s financial deficit. On Saturday, the Palestinian Ministry of Finance announced that the Palestinian tax money retained by Israel has exceeded $640 million.

"The real solution to the PA's crisis remains the return of Palestinian tax money by Israel"

According to an economic researcher at Bisan research centre in Ramallah, Jebril Mohammad, the import taxes retained by Israel make up 80% of the tax income of the PA.

“The taxes that the PA collects from employees, workers and small traders in the Palestinian territories represent no more than 20 to 25% of the total bulk of tax money that comes into the PA’s budget. The rest comes from taxes on imports,” Mohammad told The New Arab.

“This strategic item of the public budget was left in the Paris protocol to the goodwill of the occupying state, which uses it for political pressure, which means that much of the financial crisis is actually political,” he added.

Occupied resources
 

Another political factor contributing to the constant budget deficit of the PA is the lack of access, for Palestinians, to Palestinian natural resources. Most of these resources are located in Area C, classified by the Oslo Accords as being under direct Israeli control, representing more than 60% of the West Bank's territory.

Nearly all illegal Israeli settlements, numbering over 400,000 settlers in the West Bank, are located in Area C.

According to a World Bank report from 2013, Palestinian resources in Area C could contribute as much as $3.4 billion to the Palestinian budget, which is around three-quarters of Palestinian public expenditure.

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Jebril Mohammad explained to The New Arab that “these resources include more than 26 kilometres of the Dead Sea’s coast, exploited by Israel for mineral and cosmetic products, as well as tourism and stone quarries in the hills, exploited by Israel for building material, agricultural lands in the Jordan valley, exploited by Israeli settlements, and the natural gas off the Gaza Strip shore, also exploited by Israel”.

Mohammad insisted that “it requires political will from the PA to encourage Palestinian investment in Area C, in defiance of Israeli control, and from the international community to protect it, both of which are lacking”.

"It requires political will from the PA to encourage Palestinian investment in Area C, in defiance of Israeli control, and from the international community to protect it, both of which are lacking"

According to the Palestinian Central Bureau of Statistics - PCBS - the GDP of the Palestinian territories, excluding occupied East Jerusalem, dropped from $3.8 billion in the first quarter of 2020 to $3.1 billion in the second quarter of the same year, mainly due to the Covid-19 pandemic.

In late October, Palestinian PM Mohammad Shtayyeh headed a Palestinian delegation to Brussels which aimed, according to Dr Estephan Salameh, at convincing the EU officials to resume their financial aid to the PA.

Qassam Muaddi is The New Arab's West Bank reporter, covering political and social developments in the occupied Palestinian territories