The Wall Street Journal said that there is concern within the administration of US President Joe Biden about the imminent financial collapse of the Palestinian Authority, due to the cessation of US funding to it by Congress, as well as Israel’s withholding of tax revenues after the “Hamas” attack on October 7, and thus this collapse threatens America's post-war plans for Gaza, which are essentially based on assuming significant authority there.

The report, prepared by the newspaper's national security editor, Vivian Salama, quotes American officials as saying that the administration is trying to circumvent a law that prevents it from contributing directly to the Palestinian Authority, while also urging allies to provide more to the organization.

American officials said that Palestinian officials have warned that the funds needed to pay salaries and provide basic government services may run out by late February.

They stated that the potential financial collapse of the Authority threatens the United States’ hopes that the Authority will be able to rule Gaza when Israel’s war on the Strip ends.

The newspaper said that early in the war in Gaza, the United States chose to rely on “a revitalized and modernized Palestinian Authority” as the best option, if not the only option, for what it described as “the day after” the end of the war.

American officials said they were concerned that without increased revenues, the organization would not be stable enough to maintain its grip on power in the West Bank, let alone be in a position to play an expanded role.

The financial plight facing the Authority also limits its ability to implement comprehensive reforms that the United States says are necessary to secure support from Israel and the Palestinian public, according to the analysis.

  Israel stopped handing over taxes to the authority

The report stated that in October, Israeli Finance Minister Bezalel Smotrich initially halted the delivery of all tax revenues, which were transferred monthly to the Palestinian Authority, pending the ministry’s approval.

The Israeli government then chose to suspend revenues allocated to Palestinian Authority employees in Gaza only, saying that the money was going into the pockets of Hamas activists.

In response, the Palestinian Authority said it would not accept any partial revenue transfers. The Authority pays the salaries of about 150,000 public sector employees in the West Bank and Gaza Strip, according to its official estimates.

In December, Biden asked Israeli Prime Minister Benjamin Netanyahu to accept a proposal to transfer frozen tax revenues to Norway for safekeeping until an arrangement was reached that would ease Israel's concerns that the money would fund Hamas, according to US officials.

The Israeli government said in January that it had approved the plan, but US, European and Palestinian officials said there were still some sticking points.

  What the Biden administration fears

According to the report, American officials say that if the Palestinian Authority runs out of funds, it will be vulnerable to groups that the United States and Israel consider more extremist and opposed to the settlement.

Officials say that the deteriorating security situation in the West Bank may burden them, amid increasing clashes between Israeli forces and Palestinian militants, as well as attacks by Israeli extremists.

The senior Palestinian official said that the Palestinian Authority has been suffering from a financial crisis since 2020.

He added that the Palestinian Ministry of Finance operates under “the most restrictive budget, which is the worst scenario, as it pays part of public employees and tries to pay off parts of previous debts.”

He added that he hoped international pressure would lead to a rapid transfer of funds.

  Congress and Washington's capabilities

According to the report, Washington’s capabilities to finance the Palestinian Authority have become limited since the passage of the “Taylor Force Act” in Congress in 2018, which suspended US bilateral economic aid to the Palestinian Authority due to its accusation of providing payments to the Palestinians, whom Washington and Tel Aviv accuse of terrorism, and their relatives.

That same year, former President Donald Trump directed the State Department to withdraw $200 million in aid originally planned for programs in the West Bank and Gaza, after a review of US assistance to the Palestinian Authority.

Biden reversed the move shortly after taking office, restoring much of the aid, which is not subject to the Taylor Force Act ban on direct aid.

The report indicates continued resistance within Congress to refinancing the Palestinian Authority.

Last January, while Congress was grappling over the foreign aid package approved by the Senate last Tuesday, Senate Minority Leader Mitch McConnell described the Palestinian Authority as “relentlessly and utterly corrupt,” and objected to including funding for Palestinian aid. 

Some US lawmakers described the United Nations and other international organizations as potential ways to circumvent the Taylor Force Act's restrictions.

  What about the European Union?

The report notes that at the same time, it seems unlikely that US allies in the European Union will enhance financial support for the Palestinian Authority.

It is noteworthy that the European Union’s Special Representative for the Middle East Peace Process, Sven Koopmans, said in an interview: “The European Union is already doing a lot, but I do not see that we are about to increase our support financially.”

Koopmaner added that while the Palestinian Authority is often criticized on issues including corruption, it is “an essential partner and we must stand by them and also encourage them a lot to reform and we help them in that.”

He continued: “If the Palestinian Authority collapses for any reason, it will be a disaster for the security situation, for the Palestinians, for the Israelis, and for the region as a whole.”