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Palestinian Authority Can’t Pay May Salaries
Palestinian Authority employees wait to be paid in the northern West Bank city of Jenin, January 28, 2007. (Saif Dahlah/AFP via Getty Images)

Palestinian Authority Can’t Pay May Salaries

Palestinian Authority refusal to accept tax funds from Israel leaves no money for salaries, official says

The Palestinian Authority cannot pay government employees’ salaries for May after refusing to accept tax monies collected for it by Israel, which comprise 60% of the Palestinian leadership’s budget.

The Palestinian Finance Ministry said there is no money for government workers for May after President Mahmoud Abbas refused to accept the so-called tax-clearance funds from Israel, Abbas said the PA was also halting security cooperation because of Israeli plans to annex some or all of its West Bank settlements and the Jordan Valley.

“We aren’t receiving the clearance funds and at the same time, our domestic income has been reduced by 50%, so we don’t have the money to pay the May salaries,” Finance Ministry spokesperson Abd al-Rahman Byatneh told The Media Line. The PA had paid full March and April salaries.

The ministry is doing its best to obtain money from other sources “but so far, we don’t have anything. The moment we have an update or change, we will announce it,” Byatneh said.

For more than two decades, Israel has deducted monies beyond its 3% service fee (in accordance with the 1994 Protocol on Economic Relations, or Paris Protocol) from the funds it collects on behalf of the PA. These funds include taxes on imports to the Palestinian territories and income tax for Palestinians working in Israel.

The Israeli government stated that additional deductions − more than $5 million per month in some cases − pay for treatment given to Palestinians in Israeli hospitals and delinquent utility bills. The Palestinian leadership, however, considered the moves unilateral, and financial bullying. Last year, Palestinian Prime Minister Mohammed Shtayyeh called on the World Bank to create an effective mechanism to audit financial transactions from Israel to the PA, particularly to monitor Israeli deductions from Palestinian clearance funds.

The PA’s finances were also hit by declining revenues from commercial activities in the West Bank due to two months of coronavirus restrictions.

Osama Nofal, an economic analyst and instructor at University College of Applied Sciences in the Gaza Strip, told The Media Line that the PA cannot survive with a 60% hole in its budget.

“Government employees’ salaries account for 80% of the clearance funds. Now, with the PA’s refusal to accept this money, it has lost its ability to pay May salaries,” he said. Also, “foreign aid has declined by 26% compared to 2019. … These are very dangerous indicators.”

Previously, when the PA had clearance-fund deduction issues with Israel, the Palestinian leadership took out loans from local banks.

“Since 2019, the PA has borrowed more from local banks,” Nofal said. “The extent of the PA’s borrowing climbed to a peak of 9.4 billion shekels (more than $2.7 billion), and 54% of that came from local banks.

He said that local banks in the West Bank were affected negatively; in particular, they were unable to adapt to the size of borrowing by the PA. Therefore, the latter can no longer borrow from [these] banks.”

Nofal revealed that the PA’s attempts to secure a financial umbrella from Arab and other Muslim countries have borne little fruit. However, it did receive “European Union assistance of 23 million euros [$26 million] a few days ago.” This “saved the economy from complete collapse, but it didn’t resolve the salary issue,” he said. “Without the clearance funds, it would be very hard” to pay those wages.

In 2016 and 2019, Israel made clearance-fund deductions without PA consent and then the PA refused to accept the rest of the money, he said. “But both times, the PA reversed its decision because the clearance funds are the backbone of its budget.”

“At the same time, the PA can’t bow to Israel and the annexation plan, and this has created a very big financial problem,” Nofal added.

There are also other reasons for the PA’s financial crisis, Nofal said.

“The 2020 budget for ministry operating expenses was 2.2 billion shekels, a very high number, especially since we are talking about the West Bank only and not the Gaza Strip, as well. The 2020 security budget alone accounted for 22% of the PA budget, and that’s also a very high figure.”

In July 2018, the Israeli cabinet approved a law to withhold tax revenue from the PA equal to the amount the PLO pays to Palestinian security prisoners in Israeli jails and to the families of those who died in violent encounters with Israelis. In February 2019, for example, Israel withheld some $138 million from the tax revenue, which led the PA to pay 50% of February and March 2019 salaries, and in April 2019, 60%.

Moshe Marzouk, an Israeli analyst and research fellow at the International Institute for Counter-Terrorism in Herzliya, told The Media Line that the Palestinian reaction of rejecting the clearance funds after cutting ties with Israel was unexpected. “I believe that the PA is trying to put huge pressure on Israel.”

Marzouk explained that previously Israel deducted from the clearance funds for various reasons, but the PA’s latest move indicated that it wanted to put Israel in a position of responsibility over the Palestinian people, “as the Palestinian leadership is unable to deal with important issues, like paying workers, creating job opportunities in the Palestinian territories, and strengthening the weak Palestinian economy.”

He clarified that, faced with Israel’s annexation plan in the context of US President Donald Trump’s program for the region, the PA wanted to throw the burden on Israel to deal with the aftermath, economically and socially, “I personally believe that Israel was put in a very difficult position, especially if the PA collapses or resigns, and I also believe that the annexation project will not pass.”

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