In light of the worsening financial crisis facing the Palestinian Authority, warnings are escalating about the serious repercussions of the Israeli policies of deducting from the clearance funds, which are a major source of financing the Authority’s expenses.

The last deduction was on Monday, by decision of the Israeli Finance Minister, Bezalel Smotrich, to deduct 320 million shekels from the monthly clearance revenues, within the framework of a law passed by the Israeli Knesset on March 11, 2024.

In separate interviews with “I”, economic experts and university professors attribute the worsening financial crisis of the Authority to the almost total reliance on local revenues and clearance funds, which has led to restricting spending paths and accumulating debts, which exacerbates the financial deficit and threatens the ability to pay salaries and basic operating expenses.

They point out that the current crisis is having an impact on the Palestinian economy as a whole, with rising unemployment rates and a declining role for the private sector, which threatens further economic contraction in light of the continuation of systematic Israeli policies, such as settlements and withholding of clearance funds, amid warnings that what the current occupation government is doing in deducting clearance funds may be part of the economic strangulation of the Palestinians in order to push them to voluntarily emigrate from the West Bank.

In the face of these challenges, economic experts and university professors call for a review of the financial and economic policies followed, and a focus on enhancing local revenues by supporting national production and reducing dependence on imports, as well as international action to pressure Israel to release clearance funds, in addition to adopting economic policies based on transparency and investment in Palestinian human capital to achieve sustainable economic development.

The crisis is no longer limited to the financial situation of the authority

Economist Professor Dr. Tariq Al-Hajj warns of the repercussions of the deepening Palestinian financial crisis, stressing that the Palestinian Authority’s almost total reliance on only two main resources – clearance funds and local revenues – has restricted thinking to a single spending path, which is paying salaries, thus ignoring other large operating expenses and development expenses necessary to achieve economic development.

Al-Hajj points out that the crisis is no longer limited to the financial situation of the Authority, but has extended to negatively affect the Palestinian economy as a whole, including the problem of unemployment and providing income, in addition to the decline in the role of the private sector in contributing to financing the Authority.

Al-Hajj explains that relying on suppliers only has made the Palestinian Authority unable to fulfill its financial obligations, including the rights of suppliers who provide ministries with goods and services, as debts have accumulated on the Authority without being paid.

Al-Hajj believes that this reality has prompted the authority to resort to borrowing from local banks, which has led to the accumulation of debts and their reaching their peak, reflecting the extent of the financial crisis it is suffering from.

Al-Hajj stresses that the problem is not in the Israeli deductions from the clearance funds, which are not new, but in the mental framework imposed on the Palestinian citizen and decision-maker, where the main issue has become “Will the clearance funds be released to pay salaries or not?”, thus ignoring the bigger and more dangerous issues, such as settlement, forced displacement, destruction of infrastructure, imposition of settlement barriers and bypass roads, in addition to the annexation measures that Israel is systematically practicing.

Al-Hajj points out that the currently proposed solutions are not sufficient to confront these challenges, stressing that the first step must be to objectively evaluate previous mistakes and experiences.

Al-Hajj stresses that collective thinking, not individual thinking, is the key to reformulating dealing with reality, in addition to mobilizing Western peoples to support the Palestinian cause, stopping the waste of public money, and ensuring the transparency of the detailed budget.

Al-Hajj stresses the importance of investing in the Palestinian human mind, benefiting from Palestinian competencies, especially the youth, and building on previous experiences.

Al-Hajj stresses that the existence of an effective legislative council that relies on pluralism and competencies, and not on affiliation with one party, is necessary, in addition to reformulating Palestinian national education and confronting current challenges.

Regarding confronting Israeli deductions from clearance funds, Al-Hajj calls for communicating with active and influential countries in the world to pressure Israel to prevent these measures.

Al-Hajj stresses that we must go to civil society organizations in countries around the world through Palestinian embassies, and show that this money is used to manage the daily peaceful life of the Palestinians.

Al-Hajj calls for the dissolution of some agreements concluded with the Israeli side as a form of protest, even if that does not deter Israel, stressing that surrendering to the status quo is not an option.

Al-Hajj points out that Israel uses a policy of escalating pressure on the Palestinians, imposing greater pressure to push them to accept less pressure, which over time becomes palatable within the mental framework of the Palestinian human mind.

Al-Hajj confirms that the economic contraction under these circumstances may rise to more than 35%, which will have serious economic consequences in the short and long term.

Al-Hajj points out that confronting this crisis requires reconsidering current policies and adopting new strategies based on transparency, efficiency, and investment in the Palestinian people, in addition to strengthening international solidarity to support the Palestinian cause in the face of systematic Israeli policies.

Serious repercussions of the continued policy of deductions from the clearing

Birzeit University economics professor Yousef Daoud warns of the serious repercussions of the continued Israeli policy of deductions from Palestinian clearance funds, stressing that these measures threaten the Palestinian Authority’s ability to fulfill its financial obligations, especially with regard to paying salaries and wages to employees and retirees.

Dawoud explains that Israeli deductions amount to about 320 million shekels from the clearance funds monthly, which is equivalent to about a third of the clearance revenues.

According to Daoud, since the clearance revenues constitute two-thirds of the Palestinian Authority’s revenues, these deductions directly affect the Authority’s ability to finance its operating expenses, especially in light of its almost total dependence on these funds to cover salaries and wages, the value of which exceeds one billion shekels per month.

Dawoud points out that this crisis is not new, but rather it is recurring and occurs continuously, which puts the Authority in a major financial predicament, especially since the Israeli deductions reduce the Authority’s ability to pay about a third of monthly salaries and wages, which is a large number that reflects the size of the financial challenges facing the Authority.

Regarding the alternatives available to the Authority to confront this crisis, Daoud points out that the options are limited. On the one hand, the Authority can resort to borrowing, but that will increase the size of the public debt, and may negatively affect the Authority’s ability to borrow again or adhere to the financial safety standards of banks.

Daoud explains that the Authority can rely on foreign aid, but this aid is gradually drying up, especially in light of the long-term nature of the Palestinian crisis, which makes it difficult for the international community to continue providing financial support for long periods.

Dawoud asserts that the policy of “tightening the belts” that the Authority may resort to in order to reduce the wage bill and the number of workers in the public sector will not be an effective solution, but rather may exacerbate the economic crisis on the local level, especially since these employees are the ones who run the wheel of the Palestinian economy, and the interruption of job opportunities in Israel reduces the chances of Palestinian economic growth, which increases the complexity of the crisis.

Regarding radical solutions to the crisis, Daoud points out that changing the policy of the current Israeli government is necessary to find a political horizon or a political solution, which is not in the hands of the Palestinian Authority, but rather depends on international political activity and international negotiations.

Dawoud expressed his pessimism about the impact of US President Donald Trump's arrival to the White House, noting that his administration's policies do not encourage progress in the Palestinian issue, which puts the Palestinians in a major political and economic predicament.

Tightening the financial noose on the authority

The journalist specializing in economic affairs, Ayham Abu Ghosh, confirms that the continued Israeli occupation of deducting and withholding Palestinian clearance funds constitutes increasing economic pressure, and indicates that the Palestinian Authority is entering a stifling financial crisis that may make it unable, in the coming months, to pay employees’ salaries even at the rates it has been accustomed to during the past year.

Abu Ghosh explains that the recent confiscation of 320 million shekels of clearance funds is a clear indication that the Israeli occupation has begun to gradually stop the flow of any kind of clearance funds to the Palestinian Authority, which means more economic pressure and financial strangulation on the Palestinian Authority.

Abu Ghosh points out that the Palestinian Authority was recently forced to resort to a loan obtained by the Jerusalem Electricity Company, which enabled it to pay 70% of employees’ salaries, but the failure to transfer the clearance funds for January 2025 suggests that the occupation may have withheld the remainder of these funds.

Abu Ghosh explains that since October 2023, the Israeli occupation has been deducting the salaries allocated to the Gaza Strip, in addition to the salaries of martyrs and prisoners, and then transferring the remaining funds, which amounted to about 350-400 million shekels per month, in addition to local taxes and European aid.

According to Abu Ghosh, this money enabled the Authority to pay 70% of salaries during the past year, but current indicators indicate that the occupation has not yet transferred the monthly payment of the clearance funds, which increases the severity of the crisis.

Abu Ghosh explains that the accumulated funds withheld by the occupation amount to about 7.5 billion shekels, noting that the Israeli courts frequently make decisions to withhold these funds under various pretexts, the most prominent of which is accusing the Palestinian Authority of financing terrorism.

It is believed that these measures indicate two main trends: the first is that the occupation does not intend to transfer the monthly clearance funds or what remains of them, and the second is its attempt to plunder the funds withheld under alleged legal pretexts.

Abu Ghosh points out that the Palestinian Authority is facing a stifling financial crisis that may make it unable, in the coming months, to pay even the percentage it used to pay last year (70% of salaries), unless the withheld clearance funds are clearly released, and if international aid does not flow in sufficient amounts.

Abu Ghosh points out that there are European promises to resume aid, but these promises have not yet been completed, and will not be visible before next April or May, when Europe is expected to provide a grant and loan worth $2.6 billion over two years.

Abu Ghosh confirms that the current financial horizon for the Palestinian Authority seems closed or gradually narrowing, with a big question mark over the Authority’s ability to pay salaries in the coming months.

Abu Ghosh explains that this situation will increase the economic pressure on the West Bank in particular, especially in light of the continued suspension of Palestinian employment inside Israel, the dismemberment of Palestinian cities, the destruction of infrastructure, and the creation of barriers that prevent Palestinians from reaching different areas in the West Bank.

Abu Ghosh points out that these Israeli measures come within the framework of a systematic policy aimed at creating an economic environment that repels the Palestinian population and pushes them towards voluntary migration.

It is believed that the increasing economic pressure on the Palestinian government, in addition to the destruction of infrastructure and the cessation of employment, are all factors contributing to the exacerbation of the economic crisis, which witnessed the largest contraction since the establishment of the Palestinian Authority.

Abu Ghosh points out that the Israeli occupation is practicing a systematic policy on the ground to create a repulsive environment, by cutting off clearance funds, stopping employment, and destroying infrastructure, which increases economic pressures on the Palestinians and pushes them toward emigration, as part of a long-term policy aimed at emptying the land of its original inhabitants.

Serious repercussions on the financial crisis of the Authority

Financial and economic expert, Professor of Accounting Sciences at An-Najah National University, Dr. Sameh Al-Atout, warns of serious repercussions on the financial crisis facing the Palestinian Authority as a result of the Israeli occupation confiscating 320 million shekels from the clearance funds.

Al-Atout explains that this step greatly deepens the crisis, as its impact was clearly reflected in the delay in disbursing employees’ salaries for this month, which were disbursed before the middle of this month, as a result of the withholding of clearing funds, which are a major source for covering the salary bill.

Al-Atout points out that the clearance funds used to cover between 80% and 90% of the salary bill, which amounts to about one billion shekels per month, as it used to provide the treasury with an amount ranging between 800 and 900 million shekels. However, the recent deductions from the clearance funds led to a significant decline in these revenues, which exacerbated the financial crisis and directly affected the Authority’s ability to meet its financial obligations.

Al-Atout proposes fundamental solutions to alleviate the severity of the financial crisis, most notably reducing reliance on imports to enhance local tax collection.

Al-Atout explains that reducing imports would reduce the clearance bill and increase local revenues, which would contribute to addressing the financial and economic crises of the Palestinian treasury.

Al-Atout stressed that relying on local products will stimulate the production and manufacturing sectors, which will contribute to creating new job opportunities and reducing unemployment rates. It will also enhance Palestinian exports, which will have a positive impact on the national economy and reduce the financial burdens on the treasury.

Al-Atout stresses the need to develop a new economic model that is compatible with the current circumstances, as well as taking into consideration the importance of building a financial and economic policy based on local production to reduce dependence on imports, which enhances financial and economic stability in the face of the fluctuations imposed by Israeli policy.

Israeli strategy to control and empty the West Bank

Researcher and economic expert Dr. Mu'ayyad Afana confirms that the decision of Israeli Finance Minister Bezalel Smotrich to deduct 320 million shekels from the monthly clearance revenues comes within the framework of a racist law passed by the Israeli Knesset on March 11, 2024.

According to Afana, this law stipulates the allocation of 10 million shekels for every Israeli killed and 5 million shekels for every Israeli injured as a result of Palestinian operations, with these amounts being deducted from the Palestinian clearing revenues.

Afana explains that Smotrich's decision is not the first of its kind, and will not be the last, especially after the law was activated three months after its approval, i.e. in June 2024.

Afana points out that this repeated deduction has exacerbated the financial crisis experienced by the Palestinian Authority, which has been suffering since 2019 from monthly deductions amounting to 53 million shekels allocated to prisoners and martyrs. In November 2023, an additional amount of 275 million shekels was deducted, bringing the total monthly deductions to about 328 million shekels.

Afana confirms that these deductions have cumulatively reached about 7 billion shekels so far, which has led to a decrease in monthly clearance revenues to only 30%, due to Israel withholding 70% of the monthly clearance revenues.

Afana points out that these Israeli measures have put the Palestinian Authority in a complex structural financial crisis, as it is no longer able to meet its obligations towards employees, suppliers and various debts. Although this has prompted the Palestinian government to resort to bank facilities to cover employees’ salaries for this month, the problem has not been resolved and has been postponed.

Afana explains that the Israeli Ministry of Finance, even after Smotrich’s deductions, has not yet transferred the remaining share of the clearance revenues to the Palestinian Authority, which amounts to about 350 million shekels per month after the deductions. Although Israel has not officially announced the withholding of these funds, the reality indicates that they have not been transferred.

He points out that the current financial crisis is very complex and difficult, as the Palestinian Authority bears large financial obligations, including salaries of employees and suppliers, public debts, banks, pension funds and pensions. The expiration of the European financial package worth 400 million euros, which covered the period from July to December 2024, has further complicated the crisis, as a new financial package from the European Union is currently awaited, which is scheduled to be discussed and approved next April.

The authority takes legal action at the international level.

Afana calls on the Palestinian Authority to take legal measures at the international level to confront these deductions, stressing that the clearance is not a grant from Israel, but rather money owed to the Palestinian people under the Paris Economic Protocol that was signed in 1994.

Afana points out that Israel deducts 3% of the clearance revenues under the pretext of managing them, although the World Bank confirms that this percentage does not exceed 0.5%.

Afana stresses the importance of recruiting Arab and international support to confront this crisis, pointing out that the Palestinian Authority currently receives about 200 million shekels from local revenues and 10 million dollars from the Saudi grant, in addition to the remaining clearing revenues.

Afana points out that stimulating the national product can reduce dependence on clearing revenues, as these revenues constitute 68% of the Authority’s tax revenues.

Afana believes that the Israeli goal behind these measures is to economically strangle the West Bank, as the West Bank suffers from about 900 gates and barriers that cut it off, creating a difficult living reality that repels investments.

Afana asserts that the policy of deducting clearance funds is part of an Israeli strategy aimed at controlling the West Bank and emptying it of its residents, by strangling it economically and socially.

Financial collapse imminent if radical solutions are not found

The writer and economic analyst, Dr. Thabet Abu Al-Rus, warns of the danger of the continued worsening of the financial crisis that is strangling the Palestinian National Authority as a result of the continuous deductions from the clearance funds by the Israeli government, as this crisis has become a threat to an imminent financial collapse if radical solutions are not found to guarantee the collection of Palestinian financial rights.

Abu Al-Rus explains that the signing of a decision by Israeli Finance Minister Smotrich to confiscate 320 million shekels of clearance funds, in addition to the continued successive deductions practiced by the Israeli government under new Israeli laws targeting the revenues of the Palestinian Authority, deepens the financial crisis of the Authority.

Abu Al-Rus points out that the crisis worsened after a new lawsuit was filed last Thursday, demanding compensation of up to 1 billion and 234 million shekels from the Palestinian Authority for 245 people under the name of “victims of terrorism,” based on the “Compensation for Victims of Terrorism” law passed by the Israeli Knesset in 2024, which increases the amount of deductions from Palestinian clearing funds.

Abu Al-Russ asserts that the continuation of these Israeli measures will lead to a continuous financial drain on the Palestinian Authority, stressing that the clearance funds constitute approximately 65% of the Palestinian Authority’s revenues, warning that the continuation of the deductions may lead to a decline in the clearance revenues to zero in a short period.

Abu Al-Rus talks about the roots of the crisis, pointing out that the clearance funds are a Palestinian entitlement stipulated in international agreements signed since 1993 under American and international sponsorship, which regulate the financial relationship between the Palestinian and Israeli sides. However, the situation has changed since Smotrich took over the Israeli Ministry of Finance, as he began imposing new Israeli systems and laws that allow him to deduct funds from the clearance funds under various pretexts.

Regarding the proposed solutions, Abu Al-Rus suggests that the only radical solution to the crisis is to collect the Palestinian right to the clearance funds, because all the alternatives that the Palestinian governments had previously resorted to were temporary solutions, such as borrowing from banks, which had reached its maximum ceiling, or postponing the payment of private sector dues, or resorting to international courts, specifically the European Union, or trying to obtain monthly financial support from the Kingdom of Saudi Arabia in the amount of $10 million, but he stresses that all of these solutions are partial and do not address the essence of the basic crisis.

Abu Al-Rus points out that the Palestinian dues withheld by Israel at the end of 2024 amounted to about 2 billion dollars, equivalent to 7 billion and 200 million shekels, which is a huge amount that exacerbates the financial crisis facing the Palestinian Authority.

As for the idea of a third party or an intermediary country to collect the clearance funds for the Authority, Abu Al-Rus rules out the success of this option, citing the experience of Norway, which previously tried to play this role, but Israel was able to circumvent this mechanism and control it, which made it lose its usefulness.

Abu Al-Rus stresses that the real solution lies in working hard to force Israel to cancel the Israeli compensation law, which is used as a pretext to deduct the Authority’s funds, in addition to the necessity of having a strong guarantor state capable of fortifying itself against Israeli pressure.

Abu Al-Rus stresses that any real economic breakthrough is dependent on a political breakthrough between the Palestinian and Israeli sides, and that the continuation of the political crisis will keep the Palestinian economic situation in a state of suffocation, with only partial and temporary solutions possible, without addressing the fundamental problem of collecting Palestinian financial rights.