Israel’s sanctions on the Palestinian Authority for funding terrorism is having a dramatic effect on the PA economy, the World Bank said in a special report. According to the Bank, the refusal of the PA to accept partial transfer of customs and duties due to the Israeli sanctions “has forced the PA to accumulate debt from domestic banks, and build up arrears to employees, suppliers and the public pension fund, creating large liquidity challenges for the economy.”
In January, the Knesset passed a law which deducted from taxes and duties Israel collects on behalf of the PA the amount of money it pays to terrorists and their families. The sum is about NIS 600 million, about half of the money Israel collects. However, the PA has refused to accept the other half, demanding “all or nothing.” As a result, the PA is broke, and by the end of the year will sink even further into debt, the Bank said in its report.
While the PA does collect taxes and contributions from other countries, overall revenue in the first half of 2019 was down 68%. Among the money-saving steps the PA has taken to overcome the shortfall – amounting to about $138 million a year – is borrowing from local banks, and cutting employees’ salaries by 40%.
According to Bank official Kanthan Shankar, “the outlook for the Palestinian territories is worrisome as drivers of growth are diminishing and the severe liquidity squeeze has started to affect the PA’s ability to fulfill its responsibilities of paying its civil servants and providing public services. With the right actions and collaboration between the parties, the situation could be reversed and bring relief to the Palestinian people, its economy and living standards.
“While the regular flow of clearance revenues is an immediate priority, for sustained economic expansion, steps need to be taken to reduce access and trade barriers. Work also needs to be done to enhance the business environment for Palestinian businesses. Coordinated efforts and support by all parties could offer better economic prospects for Palestinians,” added Shankar.