Ramallah – The Israeli government's insistence on withholding a portion of Palestinian tax revenues, at a time when it also bars access for nearly 200,000 Palestinian workers, is thrusting the West Bank in Palestine into severe economic distress, which might lead to a widespread explosion by the end of January at the latest, according to experts who spoke to Al Jazeera Net.
On October 30th, Israel's Finance Minister Bezalel Smotrich ordered the freeze of Palestinian tax revenues in retaliation for the Palestinian Authority's lack of condemnation for the "Al-Aqsa Flood" operation carried out by Palestinian resistance against Gaza Strip settlements on the seventh of that same month.
As per agreements between both sides, Israel collects taxes on goods entering the West Bank and Gaza through checkpoints it controls, deducting 3% for the service, and is supposed to transfer the funds monthly to the Palestinian Authority, in what is known as "clearance revenues."
Deductions for Various Pretexts
The clearance funds are the main source that assists the Palestinian Authority in paying its employees' salaries. However, the occupation authorities habitually deduct from it under various pretexts, prompting the Authority to refuse accepting it.
The Palestinian Ministry of Finance estimates the monthly value of clearance funds at around 750 million shekels ($202 million), with Gaza's share being about 270 million shekels (approximately $73 million).
If Gaza's share and other deductions equivalent to what the Authority pays for the families of prisoners and martyrs, electricity and water bills, hospital debts, and other pretexts are added, the total monthly deductions amount to about 600 million shekels (roughly $162 million).
Because of these deductions, the Palestinian Authority is unable to pay its employees' salaries and was compelled, at the end of November, to take out bank loans equivalent to half a salary for its government sector employees for the past October.
In addition to Israeli withholdings, approximately 200,000 Palestinians, who contributed nearly 900 million shekels ($243 million) monthly to the Palestinian market, are prohibited from traveling to their jobs inside Israel, creating an additional burden that, if sustained, threatens to widen the circles of poverty and unemployment.
Moreover, there's a recession and economic decline across various sectors in the West Bank, in addition to the destruction of Gaza and the ongoing siege for more than two months.
According to recent United Nations estimates, the Palestinian economy has suffered a greater than 12% loss of its value, or $2.5 billion, due to the "unprecedented economic shock."
The Israeli checkpoints with the West Bank are open for goods only (Al Jazeera Net Archive).
Solutions or Explosion?
Rabeh Morad, an economic expert at the Palestinian Economic Policy Research Institute (MAS), says that all the aforementioned issues could lead to an explosion in the West Bank during the coming January if proper solutions are not found.
Morad explains, "By the end of January, we could enter into a severe economic crisis if the Israeli government continues to prevent the return of the laborers, who form the most significant purchasing power in the West Bank, about 900 million shekels monthly, that's close to 3 billion shekels since the beginning of the war until the end of December."
Morad points to losses estimated at around 900 million shekels due to the prevention of citizens from entering the West Bank for shopping, education, and other activities, along with an equivalent amount as indirect losses due to the damage and halt of various sectors.
The Palestinian expert continues, "With the end of January, if there is no breakthrough, we will enter a major and unprecedented economic crisis, even more so than during the Al-Aqsa Intifada (2000-2004) and the Coronavirus period (2020), which will affect the political and economic stability."
Decline in Support
Morad states that Israeli Prime Minister Benjamin Netanyahu is too weak to secure the military and police's approval for the return of workers, or to yield to American pressures to stop the clearance deductions or the readmission of workers.
With the decline in European support due to demands for political renewal, the only option left for the Authority to overcome its crisis is "generous Arab donations," but even that is uncertain because of the pretext for change and reforms.
Regarding turning to banks, Morad said that they face difficulties in recovering their loans, whether in Gaza or the West Bank, hence their capacity to assist is limited and will not solve the crisis.
Data from the Palestinian Ministry of Finance until the end of last September show that the total domestic debt stands at about 3.4 billion shekels, of which nearly a billion shekels are owed to banks.
Smuggling points in the separation wall that Palestinian laborers used to reach their workplaces in Israel (Al Jazeera Net Archive).
The Only Pressure Card
Dr. Nael Musa, an economic expert and lecturer at An-Najah National University, says the Palestinian Authority is "at the bottleneck, unable to move forward or backward."
He adds that with 70% of the Authority's revenue coming from clearance funds and 30% from local revenues, their absence means a decline in economic activity.
Regarding the Authority's options, he states that what is required is "to put the cart before the horse and admit its failure to bear responsibilities, giving its employees, including security personnel, unpaid leave."
Musa believes that laying off security personnel, who number about 70,000, is "a required step and a pressure tool in the hands of the Authority to counter Israeli government pressures."
If the Authority were to take this step, the Palestinian expert suggests it would "strengthen the Israeli proponents for disbursing clearance funds who fear an explosion in the West Bank, resulting in a rift and weakening the position of extremist ministers, led by the Finance Minister."
Musa concludes that the West Bank is on the verge of explosion, dependent on how long the debt-ridden populace can bear the current situation, "but not for more than a few weeks."
Double Failure
Political analyst Suleiman Brashat criticizes the Palestinian Authority’s absence of a suitable economic strategy to address the crisis. Discussing the economic consequence of the war, he highlights the authority's failure to manage the economic file, which has laid bare the frailty of the economy.
Brashat says, "The income of the workers was covering up the failure of the economic situation in Palestine. If the war continues in this manner, we will witness an economic collapse that may lead citizens, including Authority employees, to default on their obligations and seek other sources of income."
He doubts that the Authority will take measures such as granting unpaid leave to its employees, particularly security personnel, as a means of pressure on Israel, as "that would mean the collapse of the Palestinian Authority and fulfill an Israeli right-wing desire to annex the West Bank and establish administrative entities and local authorities as is the case in the 1948 lands."
Brashat further excludes any internal movement against the Authority, without ruling out that the poor economic performance might motivate citizens towards confrontation with the occupation.
In conclusion, he anticipates Israeli pressures may result in passing clearance funds or providing alternative sources to pay at least the Palestinian Authority employees' salaries. If the current situation persists for another month or two, it will inevitably prompt a public reaction and explode the situation in the West Bank.
