PA Prime Minister Seeks Restoration of Foreign Aid Amid Financial Crisis
Palestinians collect food aid from a distribution center run by the UN Relief and Works Agency, March 20, 2022. (Mahmoud Issa/SOPA Images/LightRocket via Getty Images)

PA Prime Minister Seeks Restoration of Foreign Aid Amid Financial Crisis

Analysts say that financial assistance and reform can help, but a sustainable Palestinian economy is not possible while Israel’s occupation continues

Palestinian Authority Prime Minister Mohammad Shtayyeh flew Sunday to Brussels, the capital of Belgium and seat of the European Union, for a meeting of the Ad Hoc Liaison Committee, a body whose primary function is to coordinate the delivery of international aid to Palestinians and the Palestinian Authority. High on Shtayyeh’s agenda will be the restoration of international financial aid that has declined drastically in recent years, leaving the PA strapped for cash.

Peter Stano, lead spokesperson for foreign affairs and security policy for the European Commission, confirmed to The Media Line that High Representative/Vice-President Josep Borrell will host the annual meeting of the international donor coordination group for Palestine on Tuesday. Norwegian Foreign Minister Anniken Huitfeldt will chair the meeting.

The Palestinian economy has been in a dire crisis since at least 2018.

In March of that year, the Trump Administration signed the Taylor Force Act into law, cutting about a third of US foreign aid to the Palestinian Authority due to payments that the PA makes to the families of Palestinians killed, injured, or imprisoned while carrying out attacks on Israel. The US views these payments as encouraging terrorism.

Subsequently, Australia and the Netherlands cut smaller amounts of aid to the PA for the same reason.

In August 2018, the US cut $300 million from its contribution to UNRWA, the UN agency for Palestinian refugees, with the State Department calling it an “irredeemably flawed operation,” and reduced its direct aid to the PA by more than $200 million.

Finally, in February 2019, the Trump Administration stopped all USAID support for the West Bank and Gaza Strip and stopped its contributions of $60 million annually to fund the Palestinian security services. The latter cut was made at the request of the PA, which feared being sued in an American court over alleged complicity in “acts of war” that targeted American citizens.

The resulting financial crisis was exacerbated by the effects of the COVID-19 pandemic, limiting economic stimulation and growth.

The World Bank reported on Monday that foreign aid to the PA plummeted from 27% of gross domestic product in 2008 to just 1.8% of GDP in 2021.

During the nearly two years of COVID-19 restrictions, the PA relied on local resources, which are minimal when tourism is removed from the equation. This caused a wave of Palestinians to slip below the poverty line. The World Bank reported that income fell in more than 60% of Palestinian households, and 20% of the previously employed workforce found itself unemployed.

Dr. Nasr Abdel Karim, a professor of finance and economics at the Arab American University, told The Media Line that “the financial situation of the PA was never good.” It relied on international donors and Israel to make up its financial deficit. However, when foreign aid declined, and then COVID-19 hit and Palestinian movement across the Green Line was restricted, the financial crisis that had long been brewing rose to the surface.

The present situation for the PA, according to Karim, is one of massive, accumulated debt that is equivalent to “close to 65% of GDP.” With debt at its maximum and foreign aid only covering around 5% of the PA’s budget, down from 15-20% of the budget, the government is in crisis.

The PA saw a steep 12% decline in GDP in 2020, and a moderate recovery in 2021, when GDP rose 7%. “Predictions show a projected 3% growth in 2022,” Karim said, “but that number is very optimistic.”

Karim believes the Palestinian economy is at its maximum potential, with no room to grow. Self-dependence and financial sustainability are not possible while Israel’s occupation continues. “Sustainability cannot be achieved while Israel controls borders, water sources, airspace, and over 62% of the land in the West Bank,” he said.

Among the reasons why financial aid has decreased, Karim says, is stagnation in the Israeli-Palestinian peace process. The EU and America provided aid for peacebuilding and “the peace process is almost dying,” he says. And while Israel is not being held accountable for failure to make progress, the Palestinians, Karim says, are being pressured.

But even if economic independence is achieved, Karim warns, “you cannot continue ignoring the fact that we have poor management of finances in the PA.” He said reform was necessary, likening the situation to surgery that is needed during a health crisis, despite it being painful.

Abu Zaid al-Nabali, the owner of a major car dealership in Ramallah, in the West Bank, told The Media Line that the lack of financial aid from the Gulf states, the US, and the EU combined with two years of the pandemic, has negatively impacted his car sales. “People have less to spend and buying a car isn’t on the top of their agenda now. They need to feed their families.”

Nabali added that if the situation didn’t improve, he would be forced to shut down. “I have to cut my losses,” he said.

The PA’s economic crisis is not only financial but also inherently political. Political analyst Nour Odeh told The Media Line that the financial situation was not simply a result of budget deficits, limited availability of funds, or poor management, but that government can never operate efficiently under occupation.

“The occupation has complete control, even over the income of this government. … It basically puts an artificial cap on the Palestinian economy and systematically impoverishes Palestinians,” Odeh said.

She said the PA’s loss in EU funding was purely political and due to one person: Hungary’s Prime Minister Viktor Orbán. “He is overriding the will of EU parliamentarians and even the European Commission itself because of his very public political leanings, which are anti-Palestinian, pro-Israeli, and pro-occupation,” she said.

Odeh asserted that the “nearly bankrupt government is politically convenient for the US, EU, and Israel,” which, she said, want to weaken the PA, thereby maintaining the status quo and prolonging the occupation.

Crystal Dunlap is an intern in The Media Line’s Press and Policy Student Program.

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