RAMALLAH, West Bank — Following months of speculation about the possible economic collapse of the Palestinian Authority (PA), a sequence of recent events has infused much-needed funds into its treasury, with the prospect of more to come. Of note, the PA and Israel on Oct. 3 agreed to reactivate joint technical committees to discuss outstanding issues between them. The Palestinian leadership also agreed to accept an Israeli transfer of tax revenues collected on the PA's behalf and pushed for revisiting the Paris Economic Protocol, the 1994 agreement outlining economic relations with Israel.
The Palestinians' economic crisis stems in part from cuts in aid by the Donald Trump administration and the Israeli cabinet's Feb. 17 decision to deduct 502 million shekels ($138 million) from PA tax revenue, an amount said to be equivalent to the sum the PA disbursed in 2018 to the families of Palestinian prisoners in Israeli jails and Palestinians killed in attacks against Israelis. The withholding of funds prompted Palestinian President Mahmoud Abbas to announce on Feb. 19 that he would refuse all tax transfers from Israel if any part of them was withheld.
The two sides recently had a breakthrough on the transfers issue, with the PA recovering 2 billion shekels ($571 million) in taxes from Israel on oil and petroleum derivatives sold to the PA. The Israeli price had included the tax ultimately charged to consumers. Israel transferred the amount on Aug. 22. Another breakthrough followed on Oct. 6, when Israel disbursed 1.5 million shekels ($428.5 million) of the import tax revenues it had collected for the PA.
PA leaders view reactivation of the joint committees established by Article 2 of the Paris Accord as an achievement in itself and cites it as the reason they consented to accepting truncated tax funds from the Israelis. On Oct. 6 at the first meeting of the joint committees on electricity and health, the members determined the amount of the Israeli government’s deductions from PA funds over the past years for the treatment of Palestinians in Israeli medical facilities and for the purchase of electricity. It was the first such meeting since 2000, when Israel halted the meetings after the outbreak of the second intifada.
Also on Oct. 6, Abbas had told a gathering of PLO faction leaders and other members that the joint committees will discuss various outstanding issues and that resolutions will be applied retroactively. He also said that Israel had given its preliminary consent to revisit the Paris Economic Protocol.
Of primary importance, the PA believes that activating the joint committees, in particular the economic committee — which is authorized to follow up on the implementation of the Paris Protocol and to address relevant problems — will generate millions of dollars for its treasury.
Speaking to members of the Chamber of Commerce and Industry in Ramallah on Oct. 7, PA Civilian Affairs Minister Hussein al-Sheikh said, “[Activating the joint committees] is much more important to us than the money transferred [by Israel], because they will help us stop the ongoing siphoning and stealing of our money.” Sheikh, who negotiated the committee and transfer agreements with Israeli Finance Minister Moshe Kahlon, also remarked that Israel had pledged under the Oct. 3 agreement to revisit the Paris Protocol, with French mediation, describing it as a “great achievement for the Palestinians.”
Sheikh noted that Israel typically would deduct hundreds of millions of shekels from the PA tax revenues collected in order to cover the electricity and water it provided and for medical bills for Palestinians treated in Israeli hospitals, but it would do so without submitting itemized bills of the deductions. Israeli officials would simply inform Palestinian Finance Ministry of the amount withheld.
Sheikh confirmed that PA leaders had told the Israelis that they would not accept collected tax revenues unless the technical committees were reactivated, even if it meant the PA's collapse. Under the Paris agreement, either of the two parties can request a committee meeting to review any matter under its purview.
Majed al-Fetiani, secretary of the Fatah Revolutionary Council, emphasized to Al-Monitor that reactivation of the technical committees will allow for revisiting the files on Israeli deductions from PA tax revenues, potentially generating large sums of money to boost the PA's budget. The Palestinians fear, however, that Israel might not follow through on committee meetings as promised.
“There are no guarantees in regard to Israel,” Fetiani remarked. “It would have been obvious on the ground if [Israel] had been willing [all along] to commit to all of our [bilateral] agreements. Despite this, we are employing all means to protect our rights, regardless of Israeli intentions.”
Muwaffaq Matar, executive director of Fatah Revolutionary Council's Mobilization and Organization Commission, also views the committees' reactivation as an achievement because of the opportunity it offers for auditing Israel's books. He told Al-Monitor that the Israelis had informed the PA that monies had been kept by Israelis from the medical dossier. Sheikh had indicated that Kahlon, at their Oct. 3 meeting, had admitted to corruption and theft of PA money involving medical treatments.
Speaking to Al-Monitor, Samir Abdullah, former PA minister of labor and planning and a senior researcher at the Palestine Economic Policy Research Institute, said that Israel could use the reactivation of the joint committees to dispel concerns of the international community about its failing to meet its commitments leading to the weakening of the PA. He also asserted, “[The meetings] will not produce genuine benefits to the Palestinians.”
As Abdullah sees it, there is a need for a political shift in Israel to make any real difference, but this is unlikely in light of the United States' unquestioning support of Israel. He conceded, however, that the joint committees could resolve some outstanding economic issues.
He further minimized the importance of reactivating the joint committees by noting past Israeli behavior. “Israel completely ignored the Paris Protocol, and that the PA could fail to provide services to its citizens any minute, just as happened when Israel withheld tax revenues.” Abdullah believes Israel consented to revisiting the Paris Protocol to give the impression that things are normal with the PA, which could support Israel's project to normalize ties with Arab countries.
The PA citing reactivation of the technical committees as an achievement and the reason behind accepting truncated tax funds points to the PA's ongoing economic vulnerability after eight months of crisis that drained local banks’ ability to lend funds and confirms that Arab countries’ financial infusions will not help resolve the cash crisis.
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