For the second month in a row, the government disbursed the salaries of public employees at a rate of 50% of the salary, with a minimum of 2,000 shekels, in light of the financial blockade imposed by the Israeli occupation government on our people, in parallel with the war of annihilation it is waging in the Gaza Strip, and its continuing aggression against the West Bank, including Jerusalem. Occupied.

Israel, the occupying power, is withholding Palestinian tax revenues, “clearance funds,” illegally and in violation of the signed agreements, especially the Paris Economic Protocol, which has exacerbated the Palestinian budget deficit.

Clearing is the tax revenues that Israel collects on goods imported into the Palestinian territories through the ports that it fully controls, and constitutes about 65% of total public revenues.

Although the nominal value of clearing revenues increased from approximately 1.7 billion US dollars in 2013 to 3.2 billion dollars in 2023, the occupation government used these revenues as a political tool to impose a financial blockade on the government and the Palestinian people. As a result, the Palestinian government faces a dangerous financial situation that has increased. This is exacerbated by the decline in comprehensive economic activities, including foreign trade, and the sharp decline in financial support provided by Arab or international donors to the government budget in recent years.

Economic researcher Moayed Afaneh told WAFA that the Paris Economic Protocol, signed in 1994, defined the economic relationship between Israel and the Palestinian Authority, and one of its most prominent provisions is that Israel collects customs and various taxes on goods imported into the Palestinian territories, since Israel controls the crossings and borders, and therefore it controls all Palestinian exports and imports that must pass through it.

Afaneh added: “The economic protocol stipulates that 3% of tax funds be deducted for the benefit of Israel (as an administrative commission) and that these revenues are delivered to the Palestinian Authority on the basis of a monthly clearing. This agreement, when signed, was temporary for five years, but in practice it is still in effect until today.” .

Afaneh explained, “Over the past years, Israel has used clearing revenues as a sword hanging over the necks of the Palestinians, and a means of pirating Palestinian funds. It has worked several times to detain and not transfer those funds, and has worked, and is still working, to detain and deduct from those funds under different names.” .

Afaneh stressed that disbursing 50% of the salaries of public employees, in addition to the accumulation of more arrears on the government, would reflect negatively on the overall economic process in Palestine and on the economic cycle as a whole.

According to official data, clearing revenues have decreased by more than 70% over the past few months, and as of April 30, 2024, the occupation government continues to illegally withhold about 6 billion shekels (about 1.67 billion US dollars) of Palestinian funds, including deductions. The Israeli government of border crossing fees (a cumulative amount estimated at approximately 250 million US dollars due) for increasing fees since 2008 and not sharing the Palestinian government’s share in violation of the signed agreements, and the share allocated to Gaza from the general budget (Gaza’s share) since October 2023.

The occupation government annually deducts more than one billion shekels (about $270 million) from clearing revenues under the pretext of covering electricity and water bills, especially in the Gaza Strip, noting that there is no strong auditing mechanism to verify the validity and accuracy of these utility bills. Contrary to the signed agreements, other unspecified funds are being deducted, which the occupation government refuses to disclose.

It also continues to deduct amounts from clearance revenues estimated at approximately 500 million shekels (about 136.6 million US dollars) per month, equivalent to social welfare allocations for detainees and families of martyrs, the Gaza share, electricity and water bills, and others, which has doubled the financial burden on the government budget.

Since October 2023, the Gaza share deductions have been transferred to a trust fund in Norway, a mechanism established through an Israeli-Norwegian arrangement, with funds in the fund totaling US$480 million as of April 30, 2024.

In response to the lawsuit filed against it in the International Court of Justice for violating the Convention on the Prevention and Punishment of the Crime of Genocide, and the International Criminal Court’s announcement that it is seeking to issue arrest warrants against the Prime Minister of the occupation government, Benjamin Netanyahu, and his army minister, Yoav Galant, on charges of committing war crimes, in addition to the confession of a number of countries. In the European Union in the State of Palestine, the occupation government took aggressive decisions against the government and the Palestinian people last May, including not transferring the clearance, causing its revenues to fall to zero, which further aggravated the already fragile financial situation.

Despite the deteriorating financial situation, the Palestinian government continued its commitment to its employees in the Gaza Strip, especially those working in the health and education sectors, in addition to social allocations to poor families through the cash transfer program in the West Bank and Gaza Strip, which is supervised by the Ministry of Social Development.

Under the current circumstances, the government has minimal financing options, either through increasing donor funding (especially direct budget support) or accumulating more arrears to the private sector, public sector employees, and the Palestinian Retirement Authority Fund.
Ministry of Finance data indicate that foreign aid decreased significantly from about $1.4 billion in 2013 to $358 million by the end of 2023. The government’s budget has so far received only a small amount of Arab or international financial support. Some budget support is expected to arrive by the end of the second quarter of 2024.

By the end of 2024, the government's fiscal deficit is expected to reach US$2 billion if current conditions continue. The economic contraction expected in 2024 will also lead to a significant deterioration in living conditions and significant declines in per capita income, especially in Gaza.

As a result of the financial crisis, the Palestinian government has accumulated local arrears, with partial salaries paid to public employees since November 2021 (about 80-85%).

Since October 2023, the crisis has intensified and the ability to pay partial salaries has been severely disrupted. As of May 2024, total arrears owed to public sector employees amounted to US$1.18 billion.

The government was also unable to pay the dues of suppliers of goods and services from the private sector, including private hospitals, pharmaceutical companies, medical supplies, and others. As of May 2024, private sector arrears had reached US$1.43 billion.

Afaneh noted that the drivers of the economic process in Palestine are linked to the salaries of public sector employees and semi-salaries, in addition to workers in the 1948 lands, the majority of whom have been out of work since October, which leads to a further contraction in the economic cycle, and thus a further crisis for the authority. Palestinian nationalism.

He explained that the general budget revenues come either through clearing or through local revenues, while external support, despite its scarcity, comes in pre-determined paths, especially for health and education, and therefore the Ministry of Finance cannot invest these funds for the issue of salaries or according to our national priorities, indicating that piracy Clearance funds in full, for the second month in a row, in addition to previous deductions, aim to undermine the Palestinian Authority.

He stated that with the piracy of the clearing funds, only local revenues remain, which is equivalent to about 32% of full revenues in a normal situation, but the economic downturn, the unemployment of workers in the territories in 1948, and the complete destruction of the Gaza Strip led to a contraction in local revenues to reach 20% at best. This prompted the government to borrow again to pay part of the salaries, which increases its obligations towards the local banking sector if we mention that the first installment of the government’s combined loan from the banks will be next July.

The government continues its efforts with international bodies to pressure Israel to release detained Palestinian funds and stop illegal deductions from clearance revenues, including the recent deductions of Gaza’s share of the budget, in addition to developing practical plans to help achieve financial stability by the end of 2024.

The government hopes that international pressure will succeed in releasing approximately $240 million in outstanding border crossing fees that Israel is illegally withholding, in addition to the amount accumulated in the Norwegian Trust Fund amounting to approximately $480 million.

Releasing funds illegally withheld by Israel would play an important role in addressing the financial crisis, by giving the Palestinian government the ability to partially meet its immediate budget needs and pay some of the arrears and accumulated debt.

The current Palestinian government assumed its responsibilities with a public debt exceeding $11 billion. This includes foreign debts owed to offshore banking institutions, domestic arrears owed to public sector employees, private sector suppliers and service providers, the Palestinian Retirement Authority, and official debts owed to the local banking sector.

Afana stressed that if international pressure results in the release of the withheld clearing funds, this will help the government very significantly, noting that the funds withheld from 2019 until now are 6 billion shekels according to the Minister of Finance, which is not a small number, and that releasing them helps in Continuity of cash flows to the Palestinian National Authority, noting that the average clearance funds before October 7 reached one billion shekels per month.

Afana explained that even with the release of the clearance funds, the financial crisis remains in the structural structure, as the general budget suffers from a chronic deficit between revenues and expenditures, which is not a spur of the moment as it clearly appeared 10 years ago, due to a significant decline in external support and an increase in expenditures.

He pointed out that salary and quasi-salary entitlements alone are about one billion shekels, in addition to the operating expenses of government institutions, which are approximately 300 million shekels. “Even if our funds are restored, we will still suffer from a crisis, but at least it is a crisis that can be dealt with.”

The government took a set of measures to reduce spending, including: stopping the purchase of new vehicles, implementing measures to limit the use of government vehicles outside working hours, suspending public procurement requests except for urgent necessities, and other measures.

Afaneh pointed out that “if the current circumstances continue, the government’s task of paying a percentage of its obligations next month will be very difficult, as local revenues will be 20-30% at most,” noting that the decrease in spending by citizens due to the decrease in income leads to a decrease in spending. Local revenue.

He stressed that if there is no political breakthrough in the scene related to clearing, or an influx of Arab or international relief support, the task will be very difficult, if not impossible, for the Ministry of Finance, and that technical solutions will be useless.

It is noteworthy that in 2023, the annual Palestinian GDP growth rate is estimated at about 3.2%. However, due to Israel's ongoing genocide in Gaza, the growth forecast for 2023 has been revised to -5.5% (which indicates a massive decline in economic activity in the West Bank and a complete collapse in the Gaza Strip). According to the latest World Bank report, the Palestinian economy is expected to contract further in 2024 (between -6.5% and 9.6%), in light of the blurry scene and uncertainty regarding the prospects for 2024.

In 2023, the per capita GDP in Palestine (West Bank and Gaza Strip) was estimated at approximately $3,360. However, Gaza's per capita GDP is estimated at about one-fifth the level of the West Bank, at $1,084 (the lowest per capita income ever recorded in real terms).

It is estimated that about 500,000 citizens have become unemployed since the beginning of the genocide committed by Israel in Gaza. The Palestinian economy lost more than 200,000 jobs in Gaza, while about 150,000 workers in the West Bank lost their jobs within the 48 territories. An additional 144,000 workers lost their jobs due to reduced production and restrictions on workers' access to workplaces.

According to ILO data, the daily income loss due to job losses is estimated at US$21.7 million per day (the figure rises to US$25.5 million per day when taking into account the decline in the income of public and private sector employees).

According to the most recent household survey issued by the Palestinian Central Bureau of Statistics in 2023 (pre-October 2023), the national poverty rate in Palestine was estimated at 32.8% (11.7% in the West Bank, and 63.7% in Gaza). As Gazans slide into extreme poverty, poverty rates in the West Bank will also increase due to declining economic activity and increased unemployment.