'Israel’s' deliberate policies drive West Bank economy toward collapse
5 Min Read
The West Bank economy is nearing total failure due to Israeli restrictions, with Palestinian workers barred from the occupied territories and poverty soaring.
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The Arab neighborhood of El Za'im, on the outskirts of east occupied Al-Quds in the West Bank, near where the Israeli government says settlement units will be built as part of the E1 settlement project, Thursday, August 21, 2025 (AP)
Since October 2023, when the war on Gaza broke out, Palestinian construction worker Rauf from the West Bank has only managed to work once in "Israel", Foreign Policy's Jessica Buxbaum writes.
Buxbaum adds that Rauf, who has refrained from giving his last name due to security concerns, was caught while climbing over the barrier wall in July 2024 during a police raid and jailed for 38 days. Now banned until 2027, Rauf has been left jobless, struggling with odd street-cleaning shifts that pay about 50 shekels a day.
Foreign Policy's writer says that Rauf’s experience reflects a wider crisis. Before October 7, around 115,000 Palestinians from the West Bank held permits to work in "Israel". Nearly two years later, only 8,000 permits have been reinstated.
With hundreds of thousands of Palestinians locked out of jobs, Buxbaum says unemployment has soared past 30% in the West Bank, up from 12.9% before the war.
A survey by the International Labour Organization found that in the first year of the war, more than half of employees had their hours cut, over 60% saw wage reductions, and 65% of businesses downsized.
Economist Naser Abdelkarim warned that the unemployment crisis has doubled poverty in the West Bank, with one-third of families now living below the poverty line. “The main source of cash for the Palestinian economy, especially the West Bank, was the wages earned by Palestinian laborers in Israel,” he explained to Foreign Policy.
Read more: UNCTAD report unveils devastating economic decline in Gaza, West Bank
Withholding tax revenues and mounting debt
Job losses are only part of the economic collapse. Buxbaum writes that even before the war, "Israel" withheld billions in Palestinian tax revenues, punishing payments made to families of prisoners and martyrs. Since 2019, nearly 8 billion shekels, about $2.3 billion, have been withheld.
After October 7, "Israel" further froze revenues meant to pay public employees in Gaza, claiming the funds could reach the Resistance. In protest, the Palestinian Authority (PA) refused to accept partial transfers. "Israel" then redirected Gaza funds to a Norwegian trust, but canceled the deal when Norway recognized Palestine in May 2024.
As a result, the PA has struggled to cover salaries, paying only 50–70% by borrowing from banks. Public debt has surged to nearly $13 billion, over 130% of Palestine’s GDP.
In June, Finance Minister Bezalel Smotrich canceled the protection waiver shielding Israeli banks that conduct business with Palestinian institutions. Once it takes effect in November, Israeli banks are expected to sever ties, forcing Palestinians into a cash economy and black-market reliance.
The Foreign Policy writer says that the Palestinian Monetary Authority functions like a central bank but cannot print its own currency. Cutting ties with Israeli banks would disrupt trade and isolate Palestine’s financial system from global markets.
Researcher Ihab Maharmeh emphasized to Foreign Policy in an email that without these banking links, Palestine would be unable to import energy and food or pay public-sector salaries.
Currency surplus, cash shortages, and exchange raids
The Palestinian market is also strained by a surplus of Israeli shekels. Buxbaum states that under the Paris Protocol, only 18 billion shekels can be transferred annually to Israeli banks. With financial inflows from Palestinian workers and Palestinians residing in the territories occupied in 1984, surplus cash has piled up in banks, clogging the economy.
Abdelkarim noted to the US-based outlet's writer that banks now reject large deposits, leaving Palestinians unable to clear checks or fund trade imports.
Meanwhile, the Israeli army has intensified raids on West Bank exchange offices since October 2023, seizing millions of dollars. These centers circulate US dollars and Jordanian dinars, vital currencies for savings and daily transactions. Their disruption has caused severe liquidity shortages. Maharmeh said targeting these shops “turns a basic necessity for survival into another tool to pressure Palestinians toward migration.”
Experts call for political, not just economic, solutions
According to Buxbaum, experts argue that no economic reform alone can rescue the West Bank economy. “At the technical level, Palestinian policy can only cut budgets or raise revenue. These options are either exhausted or impossible,” Abdelkarim told the magazine.
Instead, they stress that the only solution is political: ending "Israel’s" occupation and securing Palestinian sovereignty. For Abdelkarim, this means halting the war on Gaza, reopening trade routes, and negotiating a long-term settlement.
Yet for workers like Rauf, relief feels distant. “The situation seems hopeless and endless, especially with the current Israeli government,” he told Foreign Policy. With "Israel" moving to replace Palestinian labor with migrant workers, he and thousands like him may continue to risk arrest, or worse, just to provide for their families.
