In this file photo, Israeli Finance Minister Bezalel Smotrich speaks at the Knesset, Israel s parliament, in Jerusalem. AP
“At this time, I signed an order that transfers about NIS 130 million from the PA’s frozen funds to victims of terrorism,” stated Smotritch.
The money, unilaterally deducted by Israel from the PA, will be given as restitution to 28 families that have won lawsuits raised against the PA in Israeli courts.
“The minimum of the minimum [we can do] is to transfer compensation to the families of terror victims from these funds,” said Smotritch, who is also the leader of the far-right ultra-nationalist Religious Zionism Party.
Smotritch argued that “following the judgments that awarded compensation to the victims of terrorism, we offset the same amounts from the PA’s funds and are transferring the awarded money to the families of the victims.”
Some Israeli court rulings awarding restitution to these families are 20 years old.
The extremist Minister of Finance added “I cannot continue to transfer funds to them. If this causes the PA to collapse, let it collapse.”
US warns of PA collapse
The United States warned last Thursday that Israel would see a "massive" negative impact if the Palestinian Authority collapses as Washington again pressed its ally to let revenue flow.
"We have made clear to the government of Israel in some very direct conversations that there is nothing that could be more counter to the strategic interests of Israel than the collapse of the Palestinian Authority," State Department spokesman Matthew Miller told reporters.
While acknowledging shortcomings in the Palestinian Authority, Miller said the Ramallah-based body had helped maintain stability in the West Bank even as war has raged in Gaza, run for years by rivals Hamas.
"If you saw the Palestinian Authority collapse and instability spread across the West Bank, it's not just a problem for the Palestinians," he said, "it is also a massive security threat for the state of Israel."
Israeli policies drive PA to fiscal collapse
After the start of the Israeli war on Gaza, Smotrich began deducting the amount that the PA spends on staff and pensioners in Gaza.
By April 2024, these deductions and a steep decline in private consumption and imports left the PA with less than $100 million per month in “eligible” revenues.
This amounted to 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.
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.
This is only part of its $8 billion public debt, constituting around 60 percent of West Bank GDP.
Hence, the PA is facing imminent fiscal collapse, with the West Bank, according to Palestinian Prime Minister Mohamed Mustafa, “risking an explosion any time.”
PA is already on the fiscal edge
The Palestinian Authority is facing the possibility of financial collapse, the World Bank said in a report published in late May, as revenue streams run dry and economic activity drops precipitously against the backdrop of the 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."
The Israeli war on Gaza is speeding up Israel's "annexation" of the Palestinian economy, commented analysts in late April, saying the economy has been hobbled for decades by agreements that followed the Oslo Peace Accords.
Israel is tightening the noose on the Palestinian Authority, which rules parts of the West Bank, by withholding tax revenues it collects on its behalf, economist Adel Samara told AFP.
Palestinian livelihoods have also been hurt by bans on labourers crossing into Israel and by a sharp downturn in tourism in the violence-plagued territory, including a quiet Christmas season in Bethlehem.
Samara said that technically speaking there is no Palestinian economy under Israeli occupation since the economy has been effectively annexed to that of Israel.
The Palestinian economy is largely governed by the 1994 Paris Protocol, which granted sole control over the territories' borders to Israel and with it the right to collect import duties and value-added tax for the Palestinian Authority.
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