As the Zionist aggression on Gaza commenced after the October 7th attack, alongside the military conflict it engaged in, the occupying forces executed economic and field measures in the form of sanctions and restrictions exacerbating the living conditions Palestinians are enduring.
For instance, workers from the West Bank were laid off and prevented from entering the territories established in 1948 or settlements in the West Bank, deduction of funds from the Palestinian Authority's clearing revenues, as well as imposing movement and travel restrictions between the governorates of the West Bank; which led to immediate and direct consequences on the Palestinians' economy and their living circumstances.
This article delves into how the Palestinian Authority, represented by the Ministry of Finance and the Monetary Authority, has dealt with helping citizens alleviate financial burdens borne from the war.
The Fragile Nature of the Palestinian Economy
Due to primarily political considerations related to the occupation, the "Palestinian economy" and its banking system suffer from structural problems, making it more fragile to shocks and disruptions resulting from any political, economic, or health changes or crises, in addition to the military aspects.
The fact that the Palestinian economic and banking system is not fully sovereign, neither in authorities nor in institutions, restricts the discussion about its policies, measures, and limits of its capabilities within these confines.
Examples of such restrictions include the absence of a national currency, the inability to set independent interest rates, the lack of control over natural resources and borders, and significant parts of financial resources (clearing funds collected by the occupation), among other limitations that render economic policy-making circumscribed and influenced by factors reducing its capacity to formulate and implement independent plans and policies.
However, despite these structural issues and limitations, a small margin remains for taking measures and policies that contribute to developing and improving the structure of the "Palestinian economy" and mitigating the impact of various crises through prior preparedness, an early focus on productive sectors to support and enhance their share in the economy, as well as by establishing pre-established support and hedging funds.
The Crisis of Returned Checks
With the eruption of the "Al-Aqsa Intifada," the direct effects of the aggression on the Palestinian economy and their financial transactions began to surface. A manifestation of this was nearly 200,000 workers becoming unemployed, albeit temporarily, after being barred from their jobs within the occupied lands, thus severing their and their families' sole source of income.
Accordingly, due to the financial situation of West Bank residents, the number of returned checks began to rise over time. The value of returned checks increased by 49% in the first month of the war compared to the same month last year. Meanwhile, returned checks accounted for 22% of all checks issued during the first 45 days of the war, up from 9% in the month preceding the conflict.
It is important to know that the process of uncovering and returning checks, or stopping loan payments and attempting to defer them, is a traditional protective behavior that people adopt in anticipation of any crisis before its facts and consequences materialize.
Exacerbating the difficult conditions, the occupation's decision to withhold Gaza's share of the Palestinian Authority’s clearing funds led the latter to refuse the reduced funds, which directly affects the already limited-resource budget of the authority; public workers, who used to receive 80%-90% of their salaries, only received 50% in the first month of the war.
The Authority's Measures
In actions similar to those during the "COVID-19" pandemic crisis, the Palestinian Authority—through the Ministry of Finance and the Monetary Authority—arranged with banks to postpone or reschedule loan payments due on the salaries of public employees, while allowing the possibility of advance payments or limited financing to cover liabilities and loan payments.
Naturally, this results in additional interest for the employees, which could cause more economic pressure on them in the mid to long term if the crisis persists.
The Palestinian Monetary Authority also announced the creation of a "Sustainability Plus" fund to the tune of 500 million shekels, an emergency fund to offer "reduced-interest" facilities to small and medium-sized enterprises affected by the current crisis and decline in economic and financial activities. This fund aims to cover their emergency obligations and maintain operations.
Beyond the debate on whether this fund is sufficient to help the projects, the more important question regards the effectiveness of this measure, which seems to be merely a palliative, not part of long-term, sustainable planning and actions that provide support and protection for projects that already operate in a difficult environment imposed by the occupation through measures and restrictions on movement, export, import, resources, etc. Furthermore, the principles behind this reality's complexity, associated with the authority's foundation, the nature of its agreements with the occupation, and their implementation are also debatable.
An Essential Discussion
In times of crisis, there is a tendency towards emergency measures and exceptional steps, particularly when it becomes apparent that traditional plans and actions are not as flexible as necessary and had not previously incorporated mechanisms to deal with anticipated crises. In the Palestinian case, escalations of aggression and warfare by the occupation are not unexpected.
This leads us to discuss the Palestinian Authority's measures from a broader perspective, proposing that these exceptional measures will remain inadequate for responding to crises and may even contribute to future harm to the targeted groups.
For instance, the problem of returned checks recurs with each crisis, without re-evaluating the legal structure, court procedures, current applications, and established mechanisms for treating and settling returned checks, as well as banks' regulations in issuing checks.
It's possible that contributing to a sustainable reduction in the size of this problem might entail significant commissions for banks and the monetary authority, with fees for processing returned checks amounting to about 15 million dollars for 747,000 returned check papers during the first ten months of 2023, as per "Al-Eqtisadiah" site.
The same discussion applies to the concept of the emergency fund, which will provide small and medium-sized enterprises with their needs, as the cost of the facilitated loans offered by the fund would place additional burdens on business owners, potentially leading them deeper into a continuous debt trap. With the ongoing repercussions of the aggression and the punitive measures imposed by the occupation on Palestinians and the Authority's funds, economic recovery of businesses and establishments is not expected in the near term.
The situation is not much different with public employees, who might be the largest and most affected group; they have been receiving reduced salaries for an extended period, which worsened with the war and the occupation's failure to transfer the clearing funds.
While postponing their loan payments and rescheduling them temporarily alleviates their burden, it also adds extra interest and costs, where banks seem to be the biggest beneficiaries, as they may experience a current impact on cash flows but will secure greater profits and returns in the near future. According to the Palestinian Monetary Authority, the banking sector's stability is not at risk during the crisis.
Over the past two decades, numerous Palestinian economists and researchers have discussed and proposed changes to the monetary and economic policies of the Authority, addressing the tax system and its brackets, shares of developmental and productive sectors in the authority's budgets and their support, the nature and volume of support packages provided to them, along with other aspects that could bring a degree of sustainability and stability.
These proposals stem from the acknowledgment that occupation and its reality will continue to cause structural imbalances in the "Palestinian economy," yet policies and measures can still be innovated within this challenging reality, contributing to reinforcing the resilience and financial and economic stability of Palestinians, which has yet to materialize on the ground.
