The economic crisis has worsened in the Palestinian Territories due to several factors, leaving only bad options that could lead to the collapse of the Palestinian Authority (PA) and its inability to meet its obligations.

Conditions in the Gaza Strip are even worse since the economy there was already damaged and the situation has been further complicated since the recent Israeli war on Gaza, the Covid-19 pandemic and delays in payments of salaries by the PA.

The PA is also unable to pay benefits to beneficiaries of the Ministry of Social Development, some of the poorest people in Palestine.

The economic crisis is due to a reduction in funding from donor countries to the PA and Israel’s withholding of the taxes it collects on behalf of the PA.

The Israeli media has reported that Israel transferred part of these funds to assist the PA in overcoming its current financial crisis. Some 500 million shekels ($161 million) out of 1.3 billion owed have been transferred to the PA. Israel claims it has been withholding the funds because the PA uses them to pay stipends to the families of martyrs and detainees.

Israel claims the transferred funds are a loan to the PA, but the Palestinian authorities deny asking for a loan from Israel. The Israeli Ministry of Defence said the funds were not taxes collected by Israel and that they would be reimbursed from tax money collected on behalf of the PA.

Head of the Palestinian Civil Affairs Authority and member of Fatah’s Central Committee Hussein Al-Sheikh denied that the PA had received a loan from Israel. He said the PA had not received money from the Israeli government, while the Palestinian Ministry of Finance said in a statement that Israel was continuing unfairly to deduct more than 100 million shekels ($32 million) from tax revenues and was withholding more than two billion shekels ($640 million).

It demanded the immediate release of these funds, describing the amount that had been transferred as part of the withheld funds, all of which must be transferred. It said that Israel must stop the unfair deductions because they were against international law and bilateral agreements.

Palestinian President Mahmoud Abbas held talks with Israeli Defence Minister Benny Gantz in Ramallah to discuss the PA’s financial crisis due to Israel’s freezing of PA funds collected by Israel. Israel has not taken any steps on the ground to alleviate the financial crisis and restricts its assistance to allowing Palestinian traders and labourers to work inside Israel.

Palestinian Prime Minister Mohamed Ishtayyeh said the PA was in dire economic straits because overseas funds had dried up and Israel had withheld revenues. He called on the international community to put pressure on Israel to halt the deductions.

Media and Communications Spokesman at the EU office in Jerusalem Shadi Othman commented that the “PA is going through a very tough financial situation,” adding that the EU office was in contact with the Palestinian Ministry of Finance and prime minister. He said the EU would contribute funds, the amount of which was not stated, to help the PA meet part of its salary obligations.

In a recent report on economic conditions in Palestine, the World Bank expressed concern about the PA’s financial situation, saying it was no longer able to borrow from local banks. It said that the PA’s budget deficit would be $1.36 billion in 2021, making it even more difficult to meet its obligations by the end of the year.

In the Gaza Strip, which has been under siege for 14 years and suffers from stiff restrictions by Israel, poverty and unemployment rates are soaring.

Unemployment now stands at 50 per cent, according to the Palestinian authorities, and families have become more reliant than ever on food assistance provided by the UN Relief and Works Agency (UNRWA).

The bleak economic conditions have been further compounded by UNRWA’s own financial woes, which have forced the agency to reduce temporary work programmes for Palestinian refugees in Gaza and reduce food assistance to refugee camps in the Gaza Strip.

It may soon be unable to pay the operating costs of the institutions it oversees in Gaza that serve two million Palestinians.

Surveys conducted by Palestinian institutions show that since the 2014 Israeli war on Gaza more than 40,000 young Palestinians have left the Strip by sea in search of work. Thousands of others are looking for a way to leave on trips that can cost more than $6,000 paid to smugglers, later arriving in a European country where they can submit refugee applications.

The recent sinking of a boat carrying Palestinian migrants off the coast of Greece was received with shock in the Gaza Strip. Two people were killed and many others were lost at sea. The Palestinian Foreign Ministry said it was searching for the missing persons.

Palestinians living in the Strip have been protesting against poor living conditions and demanding that Hamas, which controls the Gaza Strip, cancel the taxes on imports into Gaza as these further exacerbate the economic crisis and limit the purchasing power of local people, especially as the prices of many basic commodities continue to rise.

Hamas has refused to take responsibility for the issue, saying that the economic conditions in Gaza are due to Israel’s siege as well as what it calls “financial sanctions” by the PA against the Gaza Strip.

Economic experts anticipate that the reconstruction of the Gaza Strip will create jobs for thousands of Palestinians and propel the economy forward. Construction companies are rebuilding and renovating homes and buildings destroyed by Israel during the war on Gaza in May.

*A version of this article appears in print in the 18 November, 2021 edition of Al-Ahram Weekly