Israel-Hamas War Casts a Shadow on the West Bank’s Economy

The Palestinian Authority's economic outlook was bleak even before war began in the Gaza Strip, but with thousands of workers from the West Bank now blocked from entering Israel, the effects on the Palestinian economy could be "devastating"

The Israeli military offensive in the Gaza Strip is now in its second month, and the Palestinian economy has severely weakened, with the continuing war casting a shadow on the future of the economy of the West Bank.

The outlook for the Palestinian economy was already bleak before Israel declared war in response to the Oct. 7 attacks in Israel.

Hani Asa’ad, a 47-year-old taxi driver in Nablus, told The Media Line that his income has drastically dropped since the outbreak of war. Even before the war in Gaza erupted, the economic situation in the West Bank was “awful,” Asa’ad said.

“We have been going through bad economic times for some time, but this war will surely add to our misery,” he said.

Asa’ad, a father of five, said that continued closures and limits on freedom of movement imposed by Israel, with hundreds of military checkpoints dotting the West Bank and making travel difficult, had reduced his income and forced him to look for a second job.

“I used to make about $40 a day, but with fewer and fewer people going out because of the security situation, and because many of them have lost their income, they are trying to save whatever they can, and one way is walking to where they need to go, rather than take a taxi,” Asa’ad said.

“Add that to the increase in fuel prices and car repair costs, and my income from driving isn’t enough, so I picked up a second job delivering packages.”

Hamza Odeh, a construction worker from Qalqilya, told The Media Line he had worked in Israel for 15 years, earning almost three times the income he would have had working in the West Bank.

Odeh said that with more than two decades of experience in construction, he earned nearly $3,000 a month, an income many dream of in the Palestinian territories.

“I built a nice home and bought a car for my wife, all due to my income. I did all that with a bank loan based on my income,” he said.

I’m not sure if and when I will be returning to work, but until then we have to be careful with our money and watch what we spend

However, like thousands of other Palestinians with permits to work in Israel, Odeh has been stuck at home since Oct. 7. When the war began, Israel closed all checkpoints with the West Bank, blocking the entry of Palestinian workers.

“I’m not sure if and when I will be returning to work, but until then we have to be careful with our money and watch what we spend,” Odeh said.

Odeh’s eldest son, Mohammad, has picked up work at a car garage to try to ease the burden on his father.

“I can manage my university load with my work. I have no other choice, I’m the eldest and it’s my responsibility to pitch in and help,” Mohammad said.

If prolonged, the closure may result in losses in the billions of dollars and spell disaster for an already ailing economy.

The Palestinian Monetary Authority estimates that Palestinian workers in Israel inject about $5.5 billion into the PA economy annually, equivalent to about 35% of its GDP.

The economic activity of the West Bank depends heavily on the labor sector working in Israel. The General Federation of Palestinian Trade Unions estimates the number of such workers at more than 190,000, and Israel’s dismissal of them causes a monthly loss estimated at $390 million.

The PA public employee sector, which numbers 140,000, also contributes to the economy in a significant way, but for two years public employees have been receiving only 80% of their salaries due to the financial hardship in the Palestinian Authority. These salaries were estimated at $3.7 billion in 2022.

On Oct. 25, the Palestinian Monetary Authority issued a series of instructions to local banks in an effort to ease the financial consequences of the conflict, including postponing repayments of loans by Palestinian borrowers in Gaza until the end of January.

There are real risks to the Palestinian economy, especially in the West Bank, because of the war, Ramallah-based economic analyst Dr. Thabit Abo Al Ros told The Media Line. He said that the most prominent is the general deterioration of the economic situation and the consequent fear of investing or spending in it.

Dwindling foreign aid, coupled with the Israeli closure, “will have devastating effects on the Palestinian economy,” Abo Al Ros said.

The unemployment rate exceeds 24% in the Palestinian Authority and poverty has risen above 29%, according to the Palestinian Central Bureau of Statistics.

Nasr Abdul Karim, a professor of economics at Birzeit University, said he saw “limited and narrow options in the face of the magnitude of the damage and repercussions, and … an already lame authority.”

Abdul Karim said that individual options remain broader, with some people having savings and most having other sources of income and returning to working on the land and home economic projects, as well as solidarity and social support, “but the danger remains that these options will quickly be exhausted.”

He said that he does not expect the PA government to provide anything, as it does not pay full salaries to its employees, and it also depends largely on funds transferred from Israel, but from which Israel has deducted a portion for years, and from which it recently threatened to deduct Gaza’s share, a threat that angered the PA.

A prolonged conflict would lead to the collapse of an already fragile Palestinian economy.

“A prolonged conflict would lead to the collapse of an already fragile Palestinian economy,” said Abdul Karim.

As part of the Oslo Accords, Israel collects taxes on imports for the Palestinian Authority and taxes on Palestinians working in Israel.

Under the 1994 Protocol on Economic Relations, also called the Paris Protocol and incorporated with minor changes into the 1995 Oslo II Accord, Israel retains 25% of income taxes and 3% of total revenue as collection and processing fees and is supposed to transfer the bulk of the money to the PA once every few months.

However, a 2018 law mandates that the Israeli government will deduct an amount equal to the PA’s payments to prisoners or their families who have attacked Israelis, so as to pressure the PA into stopping such payments, which Israel says encourage more violent attacks.