Palestinian Authority President Mahmoud Abbas announces the suspension of all signed agreements with Israel on July 25, 2019 in Ramallah, the West Bank. (Issam Rimawi/Anadolu Agency/Getty Images)

PA Alleviates Financial Crisis by Accepting Israeli Tax Transfer

Experts express fear about possible collapse of Palestinian economy

The cash-strapped Palestinian Authority (PA) has accepted a partial payment of more than half a billion dollars from the Israeli government. The transfer of the money is seen as an effort to keep the PA, which is facing a crippling financial crisis, from economic and political collapse.

“An agreement was reached a few days ago with the Israeli side for transferring duties on oil and fuel which the Palestinian Authority bought in Israel in the amount of around two billion shekels ($568 million),” said Palestinian Civil Affairs Minister Hussein al-Sheikh.

“Recovering this money will solve part of the financial crisis caused by the Israeli government’s freezing of Palestinian funds,” added al-Sheikh. He noted that the payment is only some of what Israel owes the PA.

The Ramallah-based PA has been on the verge of financial collapse since last February when Israel announced it was withholding about $10 million a month from revenues of some $190 million a month it collects on the PA’s behalf.

Israel said the amount being withheld equals what the PA pays Palestinian prisoners in Israeli jails, or their families.

In an interview with The Media Line, Azzam al-Shawa, the head of the Palestinian Monetary Authority, said if the financial crisis continues it will have “a major impact” on the “political and economic situation” and “lead to serious problems.

He qualified, however, that for now the PA economy remains stable.

Mohammad Khabeisah, a Palestinian financial expert, told The Media Line that the PA’s decision to accept the partial amount will have a positive impact on the Palestinian economy but won’t lift it out of its critical condition.

“This is a temporary solution and a management of the financial crisis but it’s not a long-term fix,” he asserted.

While the PA has survived the last eight months without receiving the revenue from Israel, there have been consequences. More than 160,000 civil employees have received between 40 and 60 percent of their salaries since February.

According to data from the Palestinian Central Bureau of Statistics, about 30% of the West Bank population is between the ages of 15 and 29. Many observers have expressed concern that with the lack of any prospect of a peace agreement with Israel, coupled with the dire financial situation, many young Palestinians could be radicalized and join extremist groups.

In this respect, the Israeli government sees a financially stable PA as vital for maintaining security. A senior Palestinian security official told The Media Line that security coordination and cooperation is continuing with Israel. The official, who asked not to be identified, said regular meetings between Israeli and Palestinian security officers are taking place. “We meet on a daily and weekly basis. These meetings are part of the Oslo Accords and have never stopped,” he said.

The official noted that “working together on security matters benefits both sides and that’s why it’s still ongoing.”

Hassan Awwad, a US-based expert on Palestinian affairs, said there should be grave concern about a PA collapse. If that happens, he said, “chaos will ensue.

“If the PA falls apart, the impact will be felt well beyond the Palestinian territories. Israel, the US and the Arab world should do all they can to help the PA.”

In addition to the revenues being withheld by Israel, the United States has cut more than $500 million in aid to the Palestinians. That came after PA President Mahmoud Abbas announced a boycott of the Trump Administration to protest the American recognizing Jerusalem as Israel’s capital and moving the US embassy there.

Israeli defense analyst Amir Oren told The Media Line that with the money transfer, a PA collapse has been averted for now.

“The PA is in dire financial straits due to the policies and personalities of [Israeli prime Minister Binyamin] Netanyahu and Abbas. Israel’s prime minister does not want to negotiate until forced to do so by [President Donald] Trump, and the PA’s president is angry at both the US and Hamas, and thus is willing to be in conflict with everyone. It seems,” Oren continued, “as if the very real prospect of the PA’s collapse brought some sense to the decision-makers in Jerusalem and Ramallah, so this has been averted for the time being.”

Oren said that most Israelis, including those who object to the Oslo peace process, want a stable PA.

“The problem is that backers of the current [Israeli] government deny the inevitability of entering into a serious dialogue and a concession-laden compromise [with the Palestinians]. Perhaps the September election in Israel will bring about a new reckoning, with positive change to follow.”

In order to stay afloat, the PA has been borrowing between 30 and 50 million dollars a month from Palestinian banks.

Financial analyst Khabeisah said that this has not proven to be enough and is “not a sound financial policy.” He said the PA may be forced to implement some harsh austerity measures in order to decrease its expenditures.

“The PA may be compelled to restructure its security apparatus to decrease the number of employees working for it and thereby decrease the monthly salaries it has to pay,” Khabeisah said, adding that “the recent [Israeli] payment may delay that for a few months.”

US-based Awwad expressed fear about what would happen if thousands of security employees are laid off.

“These workers don’t expect to be let go, and they have to provide for their families. If the government doesn’t secure enough money for them, who knows what will fill the role of the PA.”

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