G7 to urge Israel maintain bank links with PA amid fears of potential fiscal collapse

Finance ministers and central bankers to also call on Israel to release withheld clearance revenues to PA, citing ‘its urgent fiscal needs’

Finance ministers and central bank governors pose for the family picture at the G7 Finance Ministers meeting in Stresa, Italy, on May 24, 2024. (Gabriel Bouys/AFP)
Finance ministers and central bank governors pose for the family picture at the G7 Finance Ministers meeting in Stresa, Italy, on May 24, 2024. (Gabriel Bouys/AFP)

STRESA, Italy – G7 finance leaders will call on Israel to maintain correspondent banking links between Israeli and Palestinian banks to allow vital transactions, trade and services to continue, according to a draft joint statement seen by Reuters on Saturday.

The statement, to be released at the end of a Group of Seven finance ministers and central bank governors’ meeting in northern Italy, also calls for Israel “to release withheld clearance revenues to the Palestinian Authority, in view of its urgent fiscal needs.”

The statement echoes a warning on Thursday from United States Treasury Secretary Janet Yellen, who said the failure to renew a soon-to-expire banking waiver would cut off a critical lifeline for the Palestinian territories amid a devastating conflict in Gaza.

“We call on Israel to take the necessary measures to ensure that correspondent banking services between Israeli and Palestinian banks remain in place, so that vital financial transactions and critical trade and services continue,” the draft statement said.

The G7 finance leaders also called for the removal or relaxation of other measures “that have negatively impacted commerce to avoid further exacerbating the economic situation in the West Bank.”

Far-right Finance Minister Belazel Smotrich has indicated that Israel may not renew the waiver, which expires on July 1 and allows Israeli banks to process shekel payments for services and salaries tied to the PA, in response to the PA’s efforts for international recognition of a state and for what he said was its bid to obtain international arrest warrants against Israelis over the war with Hamas in Gaza.

Palestinian Authority Ambassador to the United Nations Riyad Mansour speaks during a UN Security Council meeting on the situation in the Middle East, at the UN headquarters in New York on March 25, 2024. (Angela Weiss/AFP)

The United Nations General Assembly overwhelmingly backed Palestinian statehood in a symbolic vote earlier this month, and on Wednesday, the leaders of Norway, Ireland and Spain announced that their countries will recognize a Palestinian state within days.

If the waiver is canceled, Israeli firms will not be able to receive money from Palestinian banks or deposit Palestinian checks, impacting business ties.

The tax revenues make up a majority of Ramallah’s budget, and Israel’s withholding of them risks collapsing the PA, Palestinian officials warned Sullivan during a meeting earlier this week, a US official told The Times of Israel.

On Friday, the World Bank warned that the PA was facing the possibility of fiscal collapse.

In the coming months, the authority’s deficit is expected to reach $1.2 billion, doubling the funding gap of $682 million at the end of 2023, the World Bank said in a report.

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