Under new deal, Israel to loan PA up to NIS 800m to cover virus losses

Under new deal, Israel to loan PA up to NIS 800m to cover virus losses

During four month period, Jerusalem will top off sum of tax revenues it sends to PA to NIS 500 million, if collected amount falls below that total

Jacob Magid is the settlements correspondent for The Times of Israel.

Palestinian Authority President Mahmoud Abbas arrives to head the Palestinian leadership meeting at his headquarters, in the West Bank city of Ramallah on May 5, 2020. (AP/Nasser Nasser, Pool)
Palestinian Authority President Mahmoud Abbas arrives to head the Palestinian leadership meeting at his headquarters, in the West Bank city of Ramallah on May 5, 2020. (AP/Nasser Nasser, Pool)

Israel and the Palestinian Authority signed off Monday on an agreement that will see Jerusalem set aside NIS 800 million ($228 million) for potential loans to Ramallah, in order to offset expected losses due to the coronavirus crisis, officials on both sides told The Times of Israel.

Starting in June and continuing for the following four months, the plan will see Jerusalem use the new bank of funds to top off the sum of monthly tax revenues that it sends to the PA to NIS 500 million ($142 million) — should the monthly sum be less than that amount.

A cumulative maximum of NIS 800 million has been set for the entire period. After the pandemic’s economic effects end and the PA recovers its revenue stream, Israel will deduct the fronted funds, which will have made up any shortfall to meet the NIS 500 million commitment, from future tax transfers.

In addition, Israel will begin charging a one percent interest rate over two years at the conclusion of the loan period.

Under interim peace agreements, Israel collects taxes on behalf of the Palestinian Authority on imports and exports, and transfers the funds to the Palestinians each month. These transfers cover a sizable chunk of the Palestinian government’s budget.

The inked deal comes a month and a half after a meeting between Finance Minister Moshe Kahlon and his PA counterpart, Shukri Bishara, during which the latter expressed concern over the hit that Ramallah’s economy would likely endure due to the pandemic, a PA Finance Ministry official and an Israeli official confirmed.

Bishara said that Ramallah’s economy would not be able to survive the pandemic if the monthly tax revenues dip below NIS 500 million, the Israeli official explained.

Palestinian Authority Finance Minister Shukri Bishara speaking at a press conference in Ramallah on March 11, 2019. (Credit: Wafa)

At a March press conference, Bishara explained that the monthly tax revenues usually add up to NIS 750 million (some $213 million), from which Israel shaves off roughly NIS 250 million (about $71 million) to cover the costs of water, electricity, and healthcare that Israel provides to the PA.

The PA finance minister expected April’s imports to take a hit due to the pandemic, but Ramadan-related purchases managed to cover losses in other areas. As a result, the sum transferred from Israel to the PA for that month’s revenues was roughly NIS 540 million, according to the Israeli official, which means that no loan from Israel was necessary.

Nonetheless, neither side believes that those numbers will be sustained in the coming months, with Ramallah concerned that its revenues could fall by more than a third.

Over the past month, Finance Ministry officials worked on drafting the exact terms for the agreement, which was officially signed by the parties on Monday.

From left: Head of of COGAT Maj- Gen Yoav Mordechai, Palestinian Minister of Civil Affairs Hussein al-Sheik, Israel’s Finance Minister Moshe Kahlon and Israel’s Ministry of Finance Director-General Shai Babad sign an agreement to resolve NIS 2 billion of debt owed by the Palestinian Authority to the Israel Electric Corporation, September 12, 2016. (Facebook/COGAT)

Both Israeli and Palestinian officials who spoke to The Times of Israel dismissed widespread Hebrew media reports claiming that the cabinet had approved the funds as a grant on Sunday evening, and that the transfer had already gone through to the PA in full.

Over the last two years, Israel has deducted funds from the tax revenues it collects, per the amount that the PA pays to Palestinians security prisoners and their families. PA Prime Minister Mohammad Shtayyeh said during a Monday cabinet meeting that the total sum of last year’s withheld funds amounted to NIS 700 million ($200 million). At one point last year, the PA rejected the entirety of the tax transfers in protest of the Knesset legislation requiring this deduction, but it relented months later, upon facing further economic turmoil.

Late last week, several banks in the West Bank blocked access to accounts of Palestinians convicted of security-related offenses, days before an Israeli military decree entered into effect imposing sanctions on banks that financially reward terrorism.

The freeze led to anger on the Palestinian streets, with shots fired at a bank in the northern West Bank city of Jenin, a Molotov cocktail hurled at another branch in Jericho, and protests held outside one in Ramallah.

The move prompted the PA to form a committee to fight the Israeli measure, and Shtayyeh said Friday that an agreement had been reached with banks to unfreeze the accounts.

Palestinians receive their salary in one of the banks in Ramallah, West Bank on May 17, 2011. (Issam Rimawi/ FLASH90)

Israel has long tried to clamp down on the hundreds of millions of dollars in stipends that are paid out to Palestinians convicted of security offenses or the families of slain attackers, which it says encourages terror. Ramallah has vowed to continue the payments, describing them as a form of social welfare and compensation for what it claims is an unfair military justice system that often robs Palestinians of due process.

The new military order, signed in February, applies substantial parts of Israel’s anti-terror law to the West Bank. The law states that any person or body handing financial aid to anyone, with the purpose being to facilitate, advance, fund or reward terror-related offenses, is committing a crime that carries a punishment of up to 10 years in prison and a fine.

read more: