Jun 7, 2024
While the United States recently warned that Palestine is facing fiscal collapse, few informed observers are surprised that the Gaza war’s economic fallout has spread to the West Bank. The G7 and the Ad Hoc Liaison Committee must help the Palestinian economy tap international financial assistance like any other developing country.
RAMALLAH – Ahead of the recent G7 summit, US Treasury Secretary Janet L. Yellen, in a rare rebuke of Israel, warned that its plans to cut off Palestinian financial institutions from the global banking system would threaten the West Bank’s economic stability. But her warning may have come too late to stop Israel’s far-right finance minister, Bezalel Smotrich, who seems bent on undermining the last vestiges of the Palestinian Authority’s (PA) already-limited self-governance in the West Bank.
Yellen seems to understand that Smotrich’s plan to sanction the PA cannot be attributed solely to the ideological underpinnings of the most annexationist government in Israel’s history. They are also indicative of an isolated Israel doubling down on its offensive in Gaza even as global pressure to end the war intensifies. But perhaps Yellen should bring her legitimate concerns about the PA’s financial solvency to US President Joe Biden, given his staunch support for Israel, before expecting other countries to take up the cause.
While the international community has recently expressed concern about the West Bank’s looming economic catastrophe, the Palestinians living there (and elsewhere) remain fixated on the war in Gaza – already a catastrophe in every way. In fact, few informed observers have been surprised at the scale, intensity, and speed with which the war’s economic fallout has hit the West Bank and the PA, given their deep dependence on Israel for jobs, trade, and currency. This asymmetrical relationship has been forged over decades of occupation, characterized by a constant struggle for land, resources, and rights, and increasing violence by extremist Israeli settlers, who have long enjoyed impunity.
Part of the dependency dynamic involves Israel collecting and clearing customs and import taxes on behalf of the PA. So, when faced with European efforts to build momentum toward a political settlement of the crisis, Smotrich decided to seize these tax revenues, in addition to threatening new financial sanctions. Prior to the war, the PA was entitled to an average of $270 million per month in total clearance revenues – enough to cover the salaries of 147,000 civil servants, its most essential current expenditure.
But for many years, Israel has made unilateral deductions, starting with unpaid utility and health bills owed to Israeli providers (based on government calculations). Since 2018, it has also deducted payments made to families of people whom the PA deems martyrs and to families of people imprisoned in Israel. By the end of 2023, these additional deductions amounted to around $1.2 billion. This does not include deductions for unpaid utilities, health bills, and other deductions called “net lending,” which totaled $662 million in 2023 alone.
After the October 7 attack on Israel by Hamas, Smotrich began deducting the amount that the PA spends on staff and pensioners in Gaza. By April 2024, these deductions, coupled with a steep decline in private consumption and imports, left the PA with under $100 million per month in “eligible” revenues, around a quarter of its monthly budget.
Smotrich has threatened to freeze the transfer of that amount and any clearance funds, while also pushing legislation to expropriate the deducted funds – which have been held in escrow accounts – to finance Israel’s war deficit. In yet another Israeli twist of the financial screws, the Bank of Israel has yet to accept the periodic exchange of accumulated stocks of Israeli shekels with Palestinian correspondent banks for foreign currency as stipulated under the Oslo Accords. This has led to panic among clients unable to deposit Israeli shekels. Meanwhile, the PA’s salary arrears have reached at least six months. And that is only part of its $8 billion public debt, which is around 60% of West Bank GDP. Hence, the PA is facing imminent fiscal collapse, with the West Bank “on the brink, risking an explosion any time,” as the normally cautious Palestinian Prime Minister Mohammad Mustafa recently put it.
The G7 leaders and the Ad Hoc Liaison Committee, an international donor group for Palestine that met last week, must heed this warning as they consider making far-reaching decisions that could be as momentous as the war’s outcome. Moreover, policymakers should be clear-eyed on what can and cannot be done. It is absurd to demand that the PA implement reforms, build state institutions, reconstruct Gaza, and police its people while Israel simultaneously withholds its main source of finance.
In the early days of Biden’s presidency, some Palestinians, still reeling from the hostility of the Trump era and without a viable path to independence, hoped that he might push for Palestinian rights. In 2021, I proposed a US-sponsored financial New Deal for Palestine, which would reinforce the PA fiscal position, without requiring US diplomatic recognition of Palestinian statehood. The idea would be to grant Palestine formal status or reach an ad hoc arrangement at the International Monetary Fund so that it can tap international financial assistance like any other developing country, a small step towards sovereignty.
Implementing this plan is more important than ever. If the countries that have recognized Palestinian statehood – either recently or in the past – want their declaration to be more than a symbolic gesture, they must start treating Palestine as the state it will eventually become. And if the United States wants to prove that it is more than an accessory to Israel’s war, it must lift its veto on Palestine’s bid to become the state it deserves to be. The march toward Palestinian fiscal sovereignty is inevitable, but it must happen sooner rather than later.
RAJA KHALID
Writing for PS since 2021
3 Commentaries
Raja Khalidi is Director-General of the Palestine Economic Policy Research Institute (MAS).
Total unemployment in the enclave and the occupied West Bank is expected to rise to 668,000 in 2024, ILO says
The gross domestic product of Palestinian territories is projected to decline by 16.1 per cent this year, compared with 2023, according to the International Labour Organisation. EPA
John Benny
Fareed Rahman
Jun 07,2024
The war on Gaza has dealt a major blow to the Palestinian private sector with production facing its most significant decline along with unprecedented levels of unemployment expected this year, a report has shown.
Between October 2023 and January 2024, about half of the private sector establishments in Palestinian territories – 29 per cent in the occupied West Bank and 100 per cent in the Gaza Strip – experienced either complete cessation or reduced production, the joint report by the International Labour Organisation and Palestinian Central Bureau of Statistics said on Friday.
Overall, Gaza and the West Bank incurred an estimated loss of $2.3 billion in private sector production value during the first four months of the war, or about $19 million a day, excluding losses in properties and fixed assets, the report added.
“The private sector production witnessed its most significant decline in construction, followed by industry and services and other branches,” the report said.
“The Gaza Strip experienced notably more severe deterioration compared to the West Bank, with the construction and industry in the strip nearly collapsing,” the report said.
The extensive damage caused by the Israel-Gaza conflict, now in its ninth month, and the continuing destruction of infrastructure in the narrow strip of land means it is likely to take several years for Gaza and the broader Palestinian economy to regain stability and recover.
The private sector, which makes up 66 per cent of total employment in the Palestinian territories, consists mainly of small to medium family-owned enterprises that are highly reliant on Israel for either inputs or as a market.
“Looking at the current status between the Palestinian Authority and Israel, there are a lot of worries that blockades and large-scale restrictions of movement will be out for months,” Cyril Widdershoven, an analyst at Hilltower Resource Advisors, told The National.
“Without any direct access to Israel's economy or infrastructure, the future looks very bleak.”
Economic forecast
Based on the assumption that the war will continue until the end of August 2024, the gross domestic product in Palestinian territories is projected to decline by 16.1 per cent this year, compared with 2023, alongside an 18 per cent drop in per capita income, the ILO-PCBS report said.
If the war continues for three more months, the unemployment rate in the territories is expected to rise substantially, reaching 47.1 per cent this year, the report added.
Total unemployment is expected to hit 668,000 in 2024, an increase of 222,000 from 2023.
“The projected unemployment rates … show that the unemployment rate for the year 2024 under the new scenario is unprecedented, exceeding by far the unemployment rate registered in the Palestinian territories at the height of the Second Intifada in 2002,” the report said.
In a recent report, the World Bank also highlighted the level of unemployment in Palestine amid the continuing war.
The multilateral lender said an estimated 200,000 jobs have been lost in the Gaza Strip, while 144,000 people are no longer employed in the occupied West Bank as a result of the escalating violence.
About 148,000 cross-border commuters from the West Bank were also denied access to the Israeli labour market due to the continuing war, pushing unemployment levels higher in the Palestinian territory, it added.
“In Gaza, the whole economy has been decimated. I don't think there's anything left standing. The Gazan economy will have to be recreated from scratch … rebuilt from the ground up literally,” Raja Khalidi, director general of the Ramallah-based Palestine Economic Policy Research Institute, told The National in an interview.
“The physical devastation, which just makes it impossible for businesses to reopen, especially the productive sector, or the services and trade … stores and supermarkets and simple services. ”
The occupied West Bank’s economy is “grinding to halt”, Mr Khalidi said, as he noted that its economy is powered by two sources of income – government salaries and Palestine workers earning in Israel.
“About 40 per cent of West Bank’s income was coming from those two sources. So, those two sources no longer exist and what can the rest of the 60 per cent of the economy do?”
Business impact
Surveys conducted jointly by the ILO and Palestinian industry bodies revealed that 98.8 per cent of enterprises in the West Bank acknowledged that they had been negatively affected by the conflict.
The businesses have encountered myriad challenges, ranging from reduced monthly sales and the loss of customers or suppliers, to decreased production capacity, supply chain disruptions and heightened transportation costs, the survey found.
“To mitigate the adverse impacts of the war, businesses implemented different measures, including reducing workforce size, hours of work and wages,” the report said.
Small and medium enterprises involved in food and trade will be under pressure from “all sides”, Mr Widdershoven said.
Future economy
The ILO-PCBS report said that Palestine’s economy needs immediate and long-term support, including financial assistance for reconstruction, business recovery support, social protection measures and income-generation initiatives.
Structural reforms are essential to reduce dependence on external factors, foster a diversified economy and ensure fair and decent wages, the report added.
A “Marshall Plan” supported by Arab countries, the International Monetary Fund and the World Bank could pave the way for Palestine’s battered economy, Mr Widdershoven said.
“Maybe something could even come out of it that is much better [such as] an emerging future-proof economy, based on technology, IT, artificial intelligence or other sectors,” he said.
However, even Arab countries are not willing to take the risk of putting in cash without guarantees of a positive change, the analyst added.
In February, the UN Conference on Trade and Development estimated that tens of billions of dollars would be needed to rebuild Gaza when Israel's war against Hamas is over.
The Marshall Plan, which was officially called the European Recovery Programme, was a US programme passed in 1948 to help western Europe rebuild its economies after the devastation of the Second World War.
The plan provided billions of dollars in grants, loans and technical assistance.
Russia’s invasion has also stirred calls to muster a similar plan for Ukraine, whose economy recorded a 30 per cent decline in 2022 due to the war's disruption of businesses, infrastructure damage and a decrease in exports.
International Labour Organization says joblessness in occupied West Bank stands at almost 32 percent, resulting in a combined total of more than 50 percent.
Published On 7 Jun 2024
Unemployment in the Gaza Strip has hit a “staggering” 79.1 percent since Israel launched its military onslaught on the besieged and bombarded territory in October last year, according to the United Nations labour agency.
In its latest assessment of the impact of the war on employment, the International Labour Organization (ILO) also said on Friday that joblessness in the occupied West Bank, which has also been hit by the crisis, had also reached nearly 32 percent.
This brings the average unemployment rate across the occupied Palestinian territory to 50.8 percent.
The figures, however, do not include those who have exited the labour force altogether amid worsening job prospects, the ILO said, warning that the actual numbers were higher.
“This excludes Palestinians who have given up on finding a job,” said Ruba Jaradat, ILO regional director for Arab States. “The situation is much worse”.
Israeli attacks on Gaza since the start of the war have killed at least 36,654 people and wounded 83,309, with thousands more missing under the rubble and presumed dead, according to Palestinian health officials.
Israel launched its assault after Palestinian group Hamas led an attack in southern Israel on October 7 that killed about 1,140 people, according to Israeli tallies.
In the West Bank, meanwhile, the Palestinian toll in Israeli attacks over the same period includes more than 530 killed and some 5,200 wounded.
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In terms of the economy, the real gross domestic product (GDP) has contracted by nearly 33 percent in the Palestinian territory since the start of the war, with an estimated contraction of 83.5 percent in the Gaza Strip, where about half of its 2.3 million people lived below the poverty line even before the war.
“Imagine with this very high level of unemployment, people will not be able to secure food for themselves and for their families,” Jaradat said.
“This is also impacting their health … Even if they have money, there are no hospitals that can accommodate the catastrophic situation there.”
In the West Bank, the GDP drop was 22.7 percent, the ILO data showed.
“In the occupied Palestinian territory and particularly in the West Bank, the reduction in incomes has pushed many families into severe poverty,” Jaradat said.
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SOURCE: AL JAZEERA AND NEWS AGENCIES
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