Will Palestinian private sector rescue national economy?

Business owners are trying to launch an initiative to lend the financially struggling Palestinian Authority as much as $200 million, but this effort has yet to take shape.

al-monitor A Palestinian holds a hundred dollar bill in a post office in the Gaza Strip, Jan. 28, 2019. Photo by Yousef Masoud/SOPA Images/LightRocket via Getty Images).
Ahmad Melhem

Ahmad Melhem

@ahmadme44502893

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Banking and Finance

Jul 16, 2019

RAMALLAH, West Bank — Some Palestinian business owners hope to help the Palestinian Authority (PA) out of its critical financial jam by putting together a loan of $150 million to $200 million for the next three months.

On July 4, the PA used bank loans to disburse 60% of the June salaries of government employees amid its ongoing financial crisis. It has been paying only partial salaries for months.

The crisis started Feb. 19, when the PA refused to accept Israel's transfer of the monthly tax revenue funds deducted by 42 million shekels ($11.7 million), which is the amount that the PA pays as stipends for Palestinian prisoners in Israeli jails and the families of Palestinian victims killed or wounded in confrontations with Israel.

Five months into its financial crunch, the PA had to borrow from local banks, request assistance from the Arab Financial Safety Net of the Arab League, apply for loans from other Arab countries and rely on local revenues to pay employees’ wages.

Meanwhile, the emergency budget announced by Palestinian Finance Minister Shukri Bishara on March 10 expires at the end of July. The plan consists of the partial payment of the wages of government employees, austerity measures to reduce public spending and periodic domestic borrowing.

President Mahmoud Abbas is expected to hold meetings by the end of this month with a number of officials to set expectations for the upcoming phase. Unsurprisingly, there's less optimism financially for the next phase than before, given the PA’s limited resources.

Meanwhile, an idea began to take form in May during a meeting at the home of oil and gas tycoon Munib al-Masri. Business owners and economic and social figures discussed the necessity for the private sector to provide the government with financial support via a local safety network. Masri revealed more about the concept-stage initiative in June.

“The initiative is a work in progress. In the coming days, meetings will be held with all parties — businessmen and government [officials] — to agree on all loan procedures, repayment methods and repayment mechanisms," Masri told Al-Monitor on July 5. “Businessmen are trying to lend [to the PA] to make sure that PA employees can keep making a living and the economy keeps moving.”

He hopes the proposal can reduce the difficulties facing the national economy and help the PA in resisting political pressure.

Explaining more about the loan, Masri said, “The first payment would be disbursed to the PA by the end of this month or the start of next month. The $150 million to $200 million loan will be interest-free."

The PA would be expected to start repaying the loan once it starts receiving the tax funds from Israel and any other aid, he added.

Masri is considered one of the wealthiest men in Palestine. In addition to his energy holdings, he has investments in real estate, tourism, communications and agriculture. He declined to identify the other businessmen who might contribute to the loan.

“We contacted around 50 businessmen, mostly from the West Bank. They all praised the idea, but we are still waiting for final confirmation regarding the amount of their contributions. Once everything is confirmed and clear, we will be able to disclose their identities.”

Amjad Ghanem, secretary-general of the Council of Ministers, told Al-Monitor in a July 5 interview, “So far, the ministry hasn’t received funds from the businessmen. The initiative is still a personal one that expresses the people’s concern for their country and their patriotism.” He added that the PA didn't request the money or pressure the businessmen; the initiative was strictly spontaneous.

Ghanem said the businesspeople are still discussing the best way to implement the loan, and they are cooperating with the Ministry of Finance. He pointed out that no tangible steps have been thus far made and no funds have been released. The issue is still being researched and studied.

According to Ghanem, the financial crisis is worsening, yet the government guaranteed 60% of wages for the month of June thanks to local revenues, a Qatari loan and a few loans from local banks.

Qatar announced May 7 it was providing Palestine with $480 million. Out of this amount, $180 million is to be granted in humanitarian aid to the Gaza Strip, while $300 million will be paid to the PA over the course of this year in monthly payments of about $25 million.

Osama Amro, chairman of the Palestinian Businessmen Association, told Al-Monitor on July 5 that Masri hoped to meet with Abbas and Prime Minister Mohammad Shtayyeh to discuss the amount of the collected funds. “Agreements are being concluded with the Ministry of Finance, and the process should be completed [soon]," he said. “This is the businessmen’s attempt to help the PA manage the crisis.”

The PA praised the initiative the moment it was announced. Government spokesman Ibrahim Melhem told Xinhua News Agency on June 18 that the initiative will help the PA pay 50% of the wages of government employees. However, the excitement has receded recently.

A government source told Al-Monitor on condition of anonymity, “The initiative is still an idea, and we would not like to discuss it as long as there have been no tangible steps toward implementing it. Once the idea reaches the president and becomes more concrete, we could talk about it more.”

Nasr Abdel Karim, an economics and finance professor at the Arab American University in the West Bank, told Al-Monitor, “The initiative has hit many obstacles. This is why no agreement has been reached. The initiative has given rise to many questions with no current answers. For instance, will the funds given to government banks regularly come from local banks? Will the money come from abroad and be placed in a separate loan fund?”

Karim noted that, so far, there aren't enough business owners and private institutions to provide the loan, especially as liquidity is needed. “The details of the initiative are not in order yet,” he said.

As the Palestinian financial crisis grows, the businessmen’s initiative remains a mere idea. Yet, if it materializes, it would help the PA meet its financial obligations over the three upcoming months. Meanwhile, the issue of deducted tax revenue funds with Israel remains pending, awaiting a radical solution.

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