Mohammad Manasra: The Monetary Authority’s decision came after the government succeeded in paying full salaries to more than 72% of employees.

Ayham Abu Ghosh: The government does not want to bear more debts and left the employee to settle his loan with the bank

Dr. Sameh Al-Atout: A measure to help banks in light of their difficult circumstances, and middle-income employees are the most affected

Dr. Thabet Abu Al-Rus: The return of full discounts will lead to a decline in purchasing power and will negatively affect the markets

Talat Alawi: The Monetary Authority and banks are dealing with employees as if the economic situation has returned to normal

Firas Yaghi: Support for the banking sector at the expense of employees and no signs of economic or political stability

Salary deductions are knocking on employees’ doors again, after the Monetary Authority announced the decision to resume those deductions, in light of difficult economic and political circumstances. However, this resumption of deductions may aim to allow banks to catch their financial breath in light of the decline in their profits.

Analysts and specialists, in separate interviews with “I”, agree that this decision increases the pressure on the already shrinking Palestinian economy, and may have negative effects on the level of consumption, which deepens the state of economic recession in the West Bank.

Analysts and experts call on the government to take effective steps to support the banking sector and ensure the continuity of banks’ operations, in parallel with supporting and backing employees, and cooperation between all concerned parties to achieve financial and economic stability that helps improve living conditions in the West Bank.

The Monetary Authority explains the reasons for the decision

Mohammad Manasra, Deputy Governor of the PMA, explained that at the beginning of 2024, the PMA issued Instructions No. (2024/2), which included granting borrowing public sector employees a ceiling for a current account/commodity Murabaha financing with the aim of enabling employees to receive the salary payment in extremely complex circumstances, especially after the seizure of clearance funds following the war waged by the occupation on the Palestinian people, where the government was forced to pay 50% of the salary at the time. The decision to grant the current account to employees also contributed to pumping additional liquidity into the market. Recently, the government succeeded in paying a full salary to more than 72% of employees and raising the minimum salary to 3,500 shekels. Therefore, the PMA decided to resume work on Instructions No. (2021/25) and resume deducting installments from public sector employees starting from the current month’s salary.

Manasra confirms that if the entire salary is transferred, the full value of the installment due from the employee will be paid. However, if a percentage of the salary is transferred, the installment will be paid as a percentage and proportion of the value of the transferred payment, not exceeding 50% of it or the value of the installment - whichever is less. Employees who wish to reduce the value of the monthly installment can reschedule their loans and process the installments due from them by going to the bank branches and requesting a loan rescheduling.

Regarding the defaulting employees, Manasra explains that they must visit the banks to organize their debts in order to benefit from the transferred portion of the salary.

Regarding the banks’ follow-up on their commitment to the new decision, Manasra confirmed that the Monetary Authority will examine the extent of banks’ commitment to the discount rates specified in the instructions, both in the office and in the field, and will deal with any complaints or objections received from public sector employees who are borrowers regarding the banks’ non-compliance, and the necessary legal action will be taken against the violating banks and the amounts deducted in violation of what the instructions stipulated will be returned to the employee.

The government is in a difficult situation.

The journalist specializing in economic affairs, Ayham Abu Ghosh, explains that the recent decision of the Palestinian Monetary Authority to resume deducting loans from salaries obliges public sector employees to return to the original contractual formula with banks after the end of the exceptional period during which employees’ loans were allowed to be rescheduled until the end of last September, which came as a result of the events of October 7, the subsequent economic deterioration, and the deepening of the financial crisis of the National Authority, which is no longer able to pay more than a certain percentage of the salary as a result of the occupation’s piracy of more clearance funds.

Abu Ghosh points out that this new decision applies only to employees in the West Bank, and it means that banks will return to deducting the full installments from employees’ salaries as agreed upon contractually, which will lead to the cancellation of the exception that was granted to employees, which stipulated the deduction of a portion of the installment value according to specific percentages.

Abu Ghosh points out that the Monetary Authority stipulated that the deduction percentage should not exceed 50% of the employee’s income, but it did not clarify how it would be dealt with if the full percentage did not cover the installment, suggesting that the matter would be left to arrangements between the employee himself and the bank, either by deducting the full amount, or granting the employee what is known as (overdraft), or rescheduling the loan by extending the repayment period in exchange for additional interest.

This decision, according to Abu Ghosh, was based on the fact that the Palestinian government considered that about 70% of employees receive their full salaries, and therefore the banks have the right to regain their right to the full deduction of installments.

Great impact on middle-income employees

Abu Ghosh believes that this trend may have a significant impact on the middle-income employee segment in particular, whose salaries range between 5,000 and 6,000 shekels, and they are the most affected because they will not be able to repay the loans in full. As for the group with the highest salaries, they receive about 70% of their salary, which makes them relatively able to commit to paying the installments due to the high value of their salaries. However, the lower categories of employees will not be affected by the decision, because this group receives their full salaries, and they obtained the loans based on their fixed income.

Abu Ghosh confirms that banks are forced to recover their dues based on the previously agreed contractual formula, as paying these loans on time is financially binding so that they are not considered in default according to international accounting standards, which spares them further financial allocations that will burden them financially.

Abu Ghosh points out that one of the proposals put forward was for the government to seek a combined loan, as the previous government did at the end of last year, to pay off part of the debts accumulated by employees. However, the current government did not resort to this step for fear of increasing the public debt and its inability to increase the value of the monthly installment to repay the loan, which may affect its ability to pay the current percentage of salaries. It left the matter to be settled directly between employees and banks, which indicates its unwillingness to bear more debts or reschedule employees’ loans in light of the difficult financial circumstances.

Abu Ghosh believes that the new decision reflects the critical situation facing the government, as it appears unable to pay employees’ dues or oblige banks to provide additional facilities, which they also have financial obligations to fulfill.

Abu Ghosh points to the embarrassment and distress that banks are suffering from if these loans are deemed non-performing, which means that they will resort to increasing risk reserve allocations, which weakens their financial capacity and increases the severity of the economic crisis.

Abu Ghosh stresses that the current phase highlights the urgent need for more comprehensive financial solutions that help employees and affected groups mitigate the repercussions of the current crisis, instead of leaving the employee to struggle with the crisis with the banks.

Negative repercussions

Abu Ghosh points out that the repercussions of the recent decision will be very negative for employees, especially those in the middle class who will be obligated either to pay the full value of the loan installments, which will be at the expense of their livelihood, or to reschedule the loans according to a formula agreed upon with the banks, which will burden them with additional interest.

Abu Ghosh explains that the decision will also affect the level of liquidity in the markets, which means further contraction and decline in the economic cycle, and the resulting increase in unemployment and poverty rates, and perhaps more closure of economic facilities.

The decision comes at a critical time financially for banks.

Financial and economic expert and professor of accounting sciences at An-Najah National University, Dr. Sameh Al-Atout, explains that the Monetary Authority is closely following the conditions of local banks, and that the decision to resume deductions from employees’ salaries for the loans owed by them came as a measure to help banks in light of the difficult financial circumstances they are going through.

Al-Atout stressed that this decision comes at a critical financial time for banks that are suffering from a difficult financial situation and losses incurred over more than a year, and the crisis has deepened over the past months, which requires taking urgent measures to strengthen their financial position.

Al-Atout points out that the timing of resuming deductions came after a careful assessment by the Monetary Authority, which saw that the banking sector, with the end of the fiscal year approaching, is in dire need of support and assistance, and this step aims to restore the protection of the banking sector and improve its sustainability, especially in light of the current economic conditions.

Regarding the financial performance of banks, Al-Atout explains that there are large losses that have been incurred by banks as a result of the decline in profits, which will appear clearly in the last quarterly report of the fiscal year.

Al-Atout believes that these losses reflect the state of instability that the banking sector is suffering from, which raises concerns about the future of liquidity and the ability to meet market needs.

Regarding the return of salaries, Al-Atout believes that the size of the debt owed by the Palestinian Authority is very large, which negatively affects the government’s ability to pay its obligations. Despite the possibility of some financial improvements, he does not expect any fundamental changes to the financial reality in the West Bank during the current period and until the next few months. Moreover, the rates of salary disbursement will remain close to what they were in previous months, which contributes to deepening the state of economic recession in parallel with the resumption of salary deductions.

Great impact on the living conditions of citizens

Al-Atout points out that the Monetary Authority’s decision will greatly affect the living conditions of citizens, as it is expected to lead to a reduction in spending and consumption, and as a result the market will witness a recession in purchasing activity, which will negatively affect the percentage of available liquidity, and the poverty rate in the West Bank may increase if these conditions continue.

Al-Atout stressed that these data require the government to take balanced measures between maintaining employees’ salaries and supporting banks to ensure their continued operation, which requires careful planning for important measures that contribute to enhancing the sustainability of the banking sector and ensuring the continuity of banks’ operations. The government must seek to take effective steps to support this sector, in a way that enhances its ability to confront the financial challenges that are plaguing it.

Al-Atout points out that the current time requires all concerned parties to cooperate to achieve financial and economic stability in the West Bank, which will help improve the living conditions of citizens and enhance confidence in the banking sector. These steps must be taken in a thoughtful and coordinated manner to ensure achieving the desired results, enhance the financial system’s ability to face future challenges, prevent market stagnation, and reduce the poverty rate.

Different trends in the financial and banking policies of the authority

Writer and economic analyst Dr. Thabet Abu Al-Rus believes that the Monetary Authority’s decision to resume full deductions on loans owed by public sector employees, which came after a suspension that lasted nearly ten months, reflects several implications and indicators that may carry within them accurate economic and political analyses.

Abu Al-Rus explains that this decision expresses different trends in the financial and banking policies of the Palestinian Authority and the banks operating in the Palestinian territories, in light of the difficult economic conditions and increasing financial pressures on the government and citizens.

Abu Al-Rus believes that this decision by the Monetary Authority suggests that there is a vision among the official authorities towards a gradual return to the usual financial activity within the Palestinian Authority, and that the situation may move towards relative stability that allows room for the return of discounts on loans.

Abu Al-Rus explains that this step suggests that there is pressure from banks, which believe that continuing to not fully discount may negatively affect their investment strategies and weaken their ability to draw up clear financial plans.

Abu Al-Rus points out that banks rely heavily on fixed cash flows, and continuing to refrain from full discounting puts their financial interests at risk, and may push them to reconsider their future plans if these policies continue.

According to Abu Al-Rus, the Monetary Authority based its decision on studies indicating that about 70% of public sector employees are now receiving full salaries, which makes it difficult to continue granting exceptions, especially with regard to deducting outstanding loans.

Abu Al-Rus points out that as a result, it seems that the Monetary Authority believes that public sector employees are able to meet their obligations to banks, especially in light of raising the minimum exchange rate, which now stands at 3,500 shekels per month, in addition to the government’s efforts to rationalize government consumption and achieve relative financial balance by seeking to obtain external financing, which has helped improve its cash liquidity.

Abu Al-Rus explains that this decision may be linked to the banks’ need to increase their cash flows as the end of the fiscal year approaches, as this is an appropriate time for banks to secure their profits and increase their liquidity, which is in line with their desire to recover employee loans.

Abu Al-Rus points out that foreign banks operating in Palestine attach special importance to future financial trends linked to the political situation, and consider that increasing their cash flows gives them greater flexibility to deal with economic events that may arise.

The decision serves the banks and not the employees

He points out that the timing of the decision may have served the banking sector, but it may not directly serve the interests of employees, especially in light of the high rates of poverty, high prices, and deterioration in the standard of living as a result of the erosion of the value of salaries due to inflation.

Abu Al-Rus explains that employees’ commitment to paying all deductions on their loans may greatly affect their ability to provide for their basic needs, as their consumption levels are expected to decline significantly, and some of them may be forced to give up necessary expenses to pay their loan installments to banks, which will lead to a decline in personal and public consumption levels.

Abu Al-Russ confirms that the return of full discounts will undoubtedly lead to a decline in the purchasing power of employees, as the employee will face an additional burden on his monthly budget, which may negatively affect local markets and lead to a decline in demand for goods and services.

Abu Al-Rus believes that this decision, despite its necessity to maintain the integrity of the banking system, reflects the challenges facing citizens, especially with the rise in poverty rates as a result of the complex economic and political conditions.

Abu Al-Rus points out that the Palestinian government, despite its attempts to improve the financial situation, is still facing difficulties in providing full and stable salaries to all employees. However, the current decision will pave the way for a gradual return to better financial stability, as the Ministry of Finance and the Prime Ministry are working to secure more external financial support, which could contribute to providing relative financial stability in the medium term, and allow employees to cover their basic expenses and pay their debts at the same time.

Abu Al-Rus believes that this decision represents a step towards restoring the usual financial system, but it carries negative effects on the standard of living of employees, especially the middle class, which bears the greatest burden in covering its loans and financial dues.

Despite the efforts of the government and the Ministry of Finance to improve the level of liquidity, Abu Al-Rus believes that the decision to fully deduct poses major challenges for employees, and requires a delicate balance between the interests of banks and the protection of citizens’ financial and living rights.

Banks' efforts to improve their financial results for the year 2024

Journalist and economic media figure Talat Alawi explains that the Monetary Authority’s decision to resume deductions on public sector employee loans returns the system to the old contractual formula before October 7, 2023, which follows the previous financial and legal rules, after the exceptions prevented deductions of loans following the events of October 7, at certain rates, and this continued until the end of last September.

Alawi explains that the decision does not include Gaza Strip employees, who were not included in these measures in the first place, stressing that the wording of the decision restores the situation to what it was before October 7, 2023, which is a step that reflects the Monetary Authority and banks’ treatment of employees on the basis that the economic situation has returned to normal, even though the situation is no longer as it was, and the crisis is still ongoing and intensifying.

Alawi points out that approximately 70% of employees receive their salaries in full, however he wonders about how deductions will be applied to some categories that receive incomplete salaries or are more affected than others, pointing out that this type of decision needs clarification and clear implementation mechanisms, because some may find themselves unable to bear the burden of deductions due to the lack of clarity in the mechanism for dealing with loans, whether they are calculated on a current and debit basis or not.

Vague decisions allow banks flexibility in their implementation

Alawi explains that such decisions are usually vague, as they allow banks flexibility in implementing them, which may lead to problems for employees in the coming days.

Alawi stresses that the resumption of deductions cannot be considered an indication of the return of full salaries to employees, as the government suffers from heavy debt burdens, as the public debt is estimated at approximately 14.5 billion shekels according to the announced data, which is open to debate.

Alawi points out that the heavy monthly obligations and the government's obligations towards employees and the private sector, amounting to about 11 billion shekels, impose additional pressures, noting that paying salaries in full is not an option in the near term.

Alawi points out the government’s obligations regarding its loans from the banking sector, which exceeded $2.5 billion, and the resulting interest, which is at the expense of the general budget, basic services, and the citizen’s budget.

Alawi believes that the government is trying to cover its financial deficit through international and Arab grants, but these temporary solutions do not address the roots of the crisis, especially in light of the unfair distribution system of the general budget, which has been an imbalance since the establishment of the Palestinian Authority and everyone is paying the price for it today.

Sensitive timing as the end of the fiscal year approaches

Alawi believes that the resumption of deductions comes at a sensitive time with the end of the fiscal year approaching, as banks seek to strengthen their financial position, noting that the current fiscal year was full of challenges, as banks’ profits declined significantly during the past period, and therefore banks need to collect as much as possible of their dues from employees and the government.

Alawi stresses that this decision to resume deductions from employees will have an impact on living standards, as the employee will bear more financial burdens, which will further deteriorate the purchasing power of citizens, which has already witnessed a significant decline, especially in some governorates where the decline has exceeded half, as employees in Ramallah face additional challenges due to the high cost of living there.

Alawi believes that the roots of the problem go back to the era of the thirteenth government headed by Salam Fayyad, which encouraged unprecedented borrowing instead of improving the conditions of employees, considering that borrowing was not a sound solution.

Alawi points out that encouraging borrowing among public sector employees has led to a significant accumulation of debts, as figures indicate that more than a third of employees rely on bank loans, which he considers a major flaw in the economic structure of Palestinian society.

Alawi points out that this increasing reliance on loans makes the Palestinian economy more fragile and vulnerable to political and financial fluctuations.

Alawi believes that these economic policies that enhance the role of loans without real solutions reflect a structural defect in Palestinian financial and economic policies.

Alawi confirms that the return to resuming deductions may represent an indication of a harsh economic and financial confrontation, accompanied by the continuation of economic crises and the rise in public debt.

Direct support to the banking sector at the expense of employee rights

Writer and political analyst Firas Yaghi considers the decision to resume deductions from employees’ salaries to pay off their loans as direct support for the banking sector at the expense of the rights of small employees, describing the decision as a disregard for employees’ rights.

Yaghi points out that the decision to deduct came under the banner that 70% of employees receive their full salaries, but Yaghi wonders, saying: “If this is the case, why are employees not given their full entitlements without any deductions?”

Yaghi bases his criticism on the deteriorating economic situation of Palestinian employees, as many of them are drowning in debt due to the irregularity of receiving their full salaries during the past periods.

Yaghi points out that it would have been more appropriate for the Monetary Authority and the government to first provide the accumulated dues of employees, so that they would be a source of repayment of the loans owed to them, stressing that this accumulation is what has burdened the employees and deprived them of the ability to live with dignity in light of the increasing economic pressures.

Yaghi believes that this decision will increase the economic burdens on employees, which will lead to more poverty and oppression of a large segment of citizens, which Yaghi considers unfair and does not contribute to creating balance or stability on the social level, stressing that it affects civil and societal peace, which may explain dangerous implications on the levels of social tension.

Yaghi points out that this requires employees to protest peacefully in accordance with the law, as any decision that would increase the burdens on them without providing the minimum of their legitimate rights must be rejected.

Yaghi stressed that employees deserve to receive all their accumulated dues, pointing out the importance of linking salaries to the cost of living index to ensure a standard of living that is in line with the difficult economic conditions.

deepening social gaps

Yaghi points out that this trend of resuming deductions will deepen social gaps and the poor Palestinian people will pay the bill, wondering how a decision can be made in this form in light of the huge debt that burdens the government for the benefit of employees.

He wonders about the basis on which this decision was based, pointing out that if the government had based its decision on data indicating the return of financial stability and the end of the salary crisis, then it must announce this officially.

Yaghi doubts the existence of actual stability, whether political or economic, saying: There are no clear indications that the salary crisis will end under the current circumstances.

Yaghi points out that the Israeli occupation government, despite American and European pressure, only extended the banking relationship for a month via a phone call, without signing a written agreement, stressing that the occupation government refused to extend for a year as demanded by the United States, which shows the financial instability facing the Palestinian Authority.

Yaghi wonders: “What financial stability are we talking about to make a decision like this that burdens employees, especially the younger ones who constitute the majority?”

Yaghi points out that this decision does not reflect any indicators of economic or political stability, noting that the steps taken may lead to more pressure on the segment of low-income employees, which increases the severity of the crisis and increases the difficulty of achieving real economic stability.