The Palestinian Authority (PA), facing a stifling financial crisis, is going door-to-door in the Arab world seeking aid. Since the United States halted its support and Israel slashed tax revenues, the PA is resolutely soliciting help to compensate for its bulging budget deficit. Officials have been busy. Just this month:
- Palestinian President Mahmoud Abbas led on March 3 a high-powered delegation to Iraq — his first visit in seven years.
- Abbas then moved on to Jordan March 5 and met with head of the Islamic Development Bank Bandar Bin Hamza Hajjar in Amman, filling him in on the tough economic situation in the Palestinian territories.
- The next day, Minister of Finance Shukri Bishara met with Jordanian Central Bank Gov. Ziad Fariz in Amman, along with governor of the Palestinian Monetary Authority Azzam al-Shawa, seeking to raise the loan ceiling offered by Jordanian banks operating in the West Bank.
- Minister of Foreign Affairs Riyad al-Maliki met with Arab League Secretary-General Ahmed Aboul Gheit in Cairo March 13 to discuss activating a financial "social safety net" of $100 million per month. The Arab League has approved such emergency funds for the PA in the past.
Abbas began stepping up PA visits to the Gulf countries months ago to garner financial support, visiting Qatar in August 2018, Oman and Kuwait in November 2018, and Saudi Arabia in February of this year.
A Palestinian official close to Abbas told Al-Monitor on condition of anonymity, “We are working hard to get the Arab safety net, but it depends on our relations with Arab states. The PA would rather not take loans … for fear of accumulating foreign debts." According to data issued March 19 by the Palestinian Monetary Authority and the Palestinian Central Bureau of Statistics, those debts reached almost $1.54 million at the end of 2018.
Meanwhile, the PA disbursed partial salaries March 10 to its 157,000 civil and military employees after a delay of more than a week. It paid about 50% of the salaries due, with the lowest-paid workers receiving a minimum of $550 and higher-ranking employees getting no more than $2,755. The PA also stopped appointments, promotions and raises, and reduced travel allocations for officials.
“The government needs to take out loans worth $50 [million] to $60 million per month from local banks in the coming six months to settle its commitments to its employees. Islamic banks, Arab funds, China and the Arab League will be contacted to activate the financial safety net,” Bishara said during a March 10 press conference at the Ministry of Information headquarters in Ramallah.
It might seem odd that Bishara mentioned China rather than other non-Arab countries, but China's latest financial support to the PA came in July in the form of $15 million in economic development aid.
Nael Dweikat, an economics professor at An-Najah National University in Nablus, told Al-Monitor, “Financial grants for the PA are not an Arab priority. Other Arab countries like Syria and Yemen are more in need of this support. Rather, an Arab loan to the PA is on the table because it has to be settled eventually. Meanwhile, a local loan from Palestinian banks is also possible because banks can guarantee the settlement of funds from employees’ salaries.”
The PA employees receive their salaries from those banks, which can use the salaries to settle the loans. It's a temporary measure for a desperate situation.
“We want to secure an Arab financial security net reaching $100 million per month, but we don't expect this amount to be fully provided. We might receive only part of the amount, and we might need to take loans from banks,” Maliki told the official Voice of Palestine station during his visit this month to Cairo.
Some 15 Palestinian and foreign banks operate in Palestinian territories: seven local, seven Jordanian and one Egyptian.
Former Minister of Labor and Planning in Ramallah Samir Abdullah told Al-Monitor, “Most Arab countries did not abide by [contributing to] the safety net, and they suffer from their own financial crises. Palestinians aren't optimistic about [those countries'] commitment to the safety net, and the PA might have to resort to the private sector as the last option to [make up for the tax revenue Israel is withholding] by the end of the year, and in one payment.”
The total of foreign grants for the Palestinian budget in 2018 reached 2.16 billion shekels ($570 million). The United States stopped providing hundreds of millions of dollars in aid to the PA, and European aid dropped by 24%, or 612 million shekels ($170 million), according to data the Palestinian Ministry of Finance published Jan. 27.
In early February, Abbas formed a team of senior PA officials, without involving Palestinian factions, to discuss the financial crisis and hold periodic meetings. The team, led by Abbas, includes his deputy Mahmoud al-Aloul, Secretary of the PLO Executive Committee Saeb Erekat, Chief of General Intelligence Majed Faraj, Minister of Civil Affairs Hussein al-Sheikh and Maliki.
Atef Adwan, head of the Economic Committee of the Palestinian Legislative Council, told Al-Monitor, “The PA might get part of the money from the safety net. The PA remains an Arab-US-Israeli interest. Its request for loans is on the table, but it will have a negative impact on Palestinians because the PA would [eventually have to] increase taxes to make up for the budget deficit.”
It is in the interest of both the United States and Israel for the PA to remain in power in the West Bank; its collapse would leave Hamas to take over or the security situation would decline into chaos, thus reflecting negatively on Israeli security.
The PA has several options for facing its crisis: Borrow from banks, mobilize Arab and international support through Palestinian diplomatic efforts, and prioritize its spending by slashing some expenses, expanding its tax base, improving tax collection efficiency and limiting tax evasion.
Mohammad Abu Jiab, editor-in-chief of Al-Eqtesadia newspaper in Gaza, told Al-Monitor, “The PA efforts focus on the Gulf countries, which have financial and political weight. I expect these efforts to succeed by mobilizing support to face the crisis without the need to resort to an Arab loan. Bank loans are on the table but can't be relied on to ensure financial stability."
Solutions for the PA’s financial crisis don't seem imminent. The PA is trying to buy time by managing its serious crisis until the final results of Israel's elections on April 9 are declared. The PA hopes the Israeli right will be defeated and the tax revenues will start flowing again, reviving its financial situation.
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