Liquidity blockage choking Palestinian economy, World Bank says

Despite last month’s receipt from Israel of funds it owed, the Palestinian Authority still faces a financing gap that could top $1.8 billion, the World Bank said Thursday.

Palestinian Authority President Mahmoud Abbas’s PA has been in deep financial crisis since February, when he refused to accept any further transfers of VAT and customs duties Israel collects on the Palestinians’ behalf because Jerusalem withheld over $138 million of the amount over Ramallah’s payouts to Palestinian terrorists and other security prisoners, and their families.

His administration had to impose austerity measures, cutting almost half the salaries of its employees.

The cuts hit hard on the Palestinian territories, already suffering unemployment of around 26 percent in the second quarter of 2019, the bank said in its latest report on the Palestinian economy.

Israel collects around $190 million a month in customs duties levied on goods destined for Palestinian markets that transit through its ports, and it is supposed to transfer the money to the PA.

In February, Israel began deducting around $10 million a month from the revenues — equivalent to the sum the PA paid inmates in Israeli jails or their families — prompting the Palestinians to refuse to take any funds at all.

Israel sees the payments to those who have carried out attacks against Israelis as encouraging further terrorist violence. The PA describes the payments as a form of welfare, while Palestinians venerate prisoners jailed by Israel as heroes for their cause.

Palestinian Authority President Mahmoud Abbas addresses the Fourth National Forum for the Fourth Industrial Revolution during the forum’s opening session in the West Bank city of Ramallah, September 9 2019. (Nasser Nasser/AP)

Last month, Israel retroactively paid more than $560 million in fuel taxes collected by the Jewish state.

But that part-payment of arrears has not fixed the liquidity crisis, the report said.

“The Palestinian Authority faces a financing gap that could exceed $1.8 billion for 2019, driven by declining aid flows and the unresolved transfer of taxes and import duties collect by Israel on behalf of the PA,” it wrote.

“The outlook for the Palestinian territories is worrisome,” Kanthan Shankar, World Bank country director for the West Bank and Gaza, said in a statement accompanying the report.

“The severe liquidity squeeze has started to affect the PA’s ability to fulfill its responsibilities of paying its civil servants and providing public services.”

The bank’s report will be presented to the international donor group for Palestinians, known as the Ad Hoc Liaison Committee, at its meeting next week in New York.

“If the clearance revenue standoff is not resolved, the PA would embark on the year 2020 after largely exhausting its domestic sources of financing, including borrowing from domestic banks, which will put it in a much worse position than in 2019,” it said.