A number of bills advanced in the Knesset on Sunday that would put financial pressure on the Palestinian Authority, as it nears a possible economic shutdown.
A private members’ bill by Religious Zionist Party MK Zvi Sukkot that would freeze funding transferred from Israel to the PA was approved in the Knesset Ministerial Committee for Legislation on Sunday.
Another private members’ bill, which was also approved in the Knesset Ministerial Committee for Legislation on Sunday, was proposed by Likud MK Dan Illouz and would fine banks that send money to the PA for “wages for terrorists.” The bill would also impose fines on foreign banks that transfer funds to PA banks.
The PA's revenue streams dry up
Last Thursday, the World Bank said the PA was on the verge of fiscal collapse. On Wednesday, Finance Minister Bezalel Smotrich said he would withhold taxes collected for the PA by Israel, and that he had no intention to extend a waiver that enables Israeli banks to work with PA banks, which is set to expire soon.
In the latest update on its report, “The Impact of the Conflict in the Middle East on the Palestinian Economy,” the World Bank said the fiscal situation of the PA has “dramatically worsened in the last three months, significantly raising the risk of a fiscal collapse.”
Due to “the drastic reduction in clearance revenue transfers payable to the Palestinian Authority and a massive drop in economic activity,” the PA’s revenue streams have largely dried up, leading to a widening gap between revenue and “the amount needed to finance essential public expenditure,” it said.
“As of the end of 2023, this financing gap reached US$682 million,” the report said. “This gap is projected to double within the coming months, reaching up to US$1.2 billion.”
Foreign assistance and public worker and supplier arrears are the only financing options available to the authority right now, the World Bank said.
About 144,000 jobs have been lost in the West Bank since last October, and some 148,000 Palestinians who were working in Israel also lost their jobs, the report said. Some of those commuters came from Gaza and some from the West Bank, it added.
The collapse could have significant impacts on Israel, a US official told The Financial Times.
A failure to renew the waiver that enables Israeli banks to do business with the PA, set to expire July 1, would worsen the economy, essentially causing a shutdown, the Financial Times reported.
This failure to renew would “be to the detriment not only of Palestinian interests but also to Israel’s and the region’s security and stability,” the official said.
“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,” he said.
After a meeting it held over the weekend, the G7 called on Israel to ensure that banking services between Israel and the PA remain in place to ensure that “vital financial transactions and critical trade and services continue.” Israel should release withheld Palestinian taxes, it said.
US concerns about economic shutdown
US Treasury Secretary Janet Yellen on Thursday expressed concern over the possible economic shutdown of the PA.
“I’m particularly concerned by Israel’s threats to take action that would lead to Palestinian banks being cut off from their Israeli correspondent banks,” she said. “These banking channels are critical for processing transactions that enable almost $8 billion a year in imports from Israel, including electricity, water, fuel, and food, as well as facilitating almost $2 billion a year in exports on which Palestinian livelihoods depend. Israel’s withholding of revenues that it collects on behalf of the Palestinian Authority also threatens economic stability in the West Bank.”
On Thursday, Smotrich said: “The PA’s financial system is up to its neck in terror.”
“They back and fund terror,” he wrote on X, adding that this makes sending them funds illegal in many countries.
Following similar threats in November by Smotrich to withhold funds from the PA, Defense Minister Yoav Gallant urged him to transfer the funds.
“Stability in the West Bank is always in Israel’s interest, and especially now,” he said at the time. “It would be appropriate to immediately transfer the funds, which will be used for running the PA as well as the forces that help prevent terror and mass events.”