World Bank warns: Palestinian Authority on brink of fiscal collapse

By Al Mayadeen English
Source: Agencies
24 May 2024 09:37

A World Bank report highlights the precarious financial situation facing the Palestinian Authority amid the ongoing Israeli war on Gaza.

Illustrative: An employee working at Bishara Jubran's household products and cosmetics factory in the occupied West Bank city of Ramallah. (AFP)

The Palestinian Authority is at risk of financial collapse, according to a World Bank report released on Thursday. The report cites dwindling revenue streams and a sharp decline in economic activity amid the ongoing Gaza war.

"The fiscal situation of the Palestinian Authority has dramatically worsened in the last three months, significantly raising the risk of a fiscal collapse," the World Bank said in a statement.

"Revenue streams have largely dried up due to the drastic reduction in clearance revenue transfers payable to the Palestinian Authority and a massive drop in economic activity," it added.

In the next few months, the authority's deficit is projected to hit $1.2 billion, doubling the $682 million funding gap recorded at the end of 2023.

The Palestinian economy is expected to shrink by 6.5 to 9.6 percent, though the Bank emphasized that the forecast is "highly uncertain."

"Increased foreign assistance and the accumulation of further arrears to public employees and suppliers are the only available financing options for the Palestinian Authority," the World Bank said.

Since October 2023, nearly half a million jobs in the Palestinian economy have disappeared, as reported by the World Bank.

This includes approximately 200,000 job losses in the Gaza Strip and nearly 150,000 job losses in "Israel" among individuals residing in the West Bank.

Poverty levels have risen, with the World Bank stating that currently, almost every resident of Gaza lives below the poverty line.

Blocking waiver could bring Palestinian economy in West Bank to a halt

If "Israel" does not renew a waiver Israeli banks need to maintain relationships with their Palestinian counterparts an "economic catastrophe" in the occupied West Bank will ensue, according to Western officials, as cited by the Financial Times on Wednesday.

Due to expire on July 1, the waiver permits payments for vital services and salaries tied to the Palestinian Authority, easing the entry of essentials such as food, water, and electricity into the occupied Palestinian territories.

Three Western officials declared that if the waiver is not renewed, the Palestinian economy will gradually shut down over time.

"The point that we’re making . . . is that you shouldn’t be threatening people’s access to food, electricity, and water at a moment like this, especially in the West Bank," a US official said, adding that it "will be to the detriment not only of Palestinian interests but also to Israel’s and the region’s security and stability" if it is not renewed.

Two Western officials claimed that the US is leading efforts to renew it by soliciting allies to pressure Israeli Prime Minister Benjamin Netanyahu. British officials revealed there is concern in the UK over the matter.

The officials noted that this issue will be negotiated at the next G7 finance ministers meeting this week in Italy.

The Palestinian economy formally runs on "Israel’s" shekel, and Palestinian financial institutions have to deal with the Bank of "Israel" and Israeli banks to access the economy.

Israeli war on Gaza causes paramount damage: World Bank

Back in February, the World Bank said that the Israeli aggression on Gaza had devastating effects on its infrastructure, which could take years to rebuild, and caused the blockaded Strip's economy to shrink by more than 80% in the last quarter of 2023.

The World Bank declared that the war caused paramount damage all over Gaza, with all economic activity in Gaza coming to a grinding halt.

The United Nations stated in late January that the genocide in Gaza and the drastic magnitude of bombing have destroyed almost half of the Gazan infrastructure, rendering the Strip uninhabitable and in need of billions of dollars for rebuilding.

It is also worth noting that after seven months of war on Gaza, "Israel" racked up a bill of 60 billion shekels ($16 billion), leaving in its trace a deficit way past this year’s target and a deteriorating economy, Bloomberg has lately reported.