Palestinian Authority prime minister calls for reinstatement of foreign aid amid financial crisis

Analysts say financial aid and reform can help, but a sustainable Palestinian economy is not possible as long as the Israeli occupation continues

Palestinian Authority Prime Minister Mohammad Shtayyeh flew to Brussels, Belgium’s capital and seat of the European Union, on Sunday for a meeting of the Ad Hoc Liaison Committee, a body whose primary function is to coordinate the delivery of international aid to Palestinians and Palestinians. Authority. One of Shtayyeh’s priorities will be restoring international financial aid, which has dwindled dramatically in recent years, leaving the PA strapped for cash.

Peter Stano, the European Commission’s senior spokesperson for foreign affairs and security policy, confirmed to The Media Line that High Representative/Vice-President Josep Borrell will host the annual meeting of the International Donor Coordination Group on Tuesday. Palestine. Norwegian Foreign Minister Anniken Huitfeldt will chair the meeting.

The Palestinian economy has been going through a serious crisis since at least 2018.

In March of that year, the Trump administration signed into law the Taylor Force Act, cutting off about a third of US foreign aid to the Palestinian Authority due to payments the Palestinian Authority makes to the families of Palestinians killed, injured or imprisoned while carrying out attacks against Israel. The United States views these payments as encouraging terrorism.

Subsequently, Australia and the Netherlands reduced their aid to the PA for the same reason.

In August 2018, the United States cut its contribution to UNRWA, the United Nations agency for Palestinian refugees, by $300 million, after the State Department called it “a fatally flawed operation”. and cut its direct aid to the PA by more than $200 million.

Finally, in February 2019, the Trump administration halted all USAID support to the West Bank and Gaza Strip and halted its $60 million a year contributions to fund Palestinian security services. This latest cut was made at the request of the AP, which feared it could be sued in US court for alleged complicity in “acts of war” that targeted US citizens.

The resulting financial crisis has been exacerbated by the effects of the COVID-19 pandemic, limiting economic stimulation and growth.

The World Bank reported on Monday that foreign aid to the PA had fallen from 27% of gross domestic product in 2008 to just 1.8% of GDP in 2021.

During the nearly two years of COVID-19 restrictions, the PA has relied on local resources, which are minimal when tourism is taken out of the equation. This pushed a wave of Palestinians below the poverty line. The World Bank reported that incomes fell in more than 60% of Palestinian households and that 20% of the previously employed labor force became unemployed.

Dr. Nasr Abdel Karim, professor of finance and economics at Arab American University, told The Media Line that “the PA’s financial situation has never been good”. It relied on international donors and Israel to fill its financial gap. However, when foreign aid dwindled, then COVID-19 hit and Palestinian movement across the Green Line was restricted, the long-simmering financial crisis resurfaced.

The PA’s current situation, according to Karim, is one of massive, accumulated debt that equates to “nearly 65% ​​of GDP”. With debt at its peak and foreign aid covering only around 5% of the PA’s budget, compared to 15-20% of the budget, the government is in crisis.

PA saw a sharp 12% decline in GDP in 2020 and a moderate recovery in 2021, when GDP grew by 7%. “The forecast shows an expected growth of 3% in 2022,” Karim said, “but this figure is very optimistic.”

Karim believes that the Palestinian economy is at its maximum potential, with no possibility of growth. Self-reliance and financial sustainability are not possible as long as the Israeli occupation continues. “Sustainability cannot be achieved as long as Israel controls borders, water sources, airspace and more than 62% of land in the West Bank,” he said.

One of the reasons financial aid has declined, Karim says, is the stagnation of the Israeli-Palestinian peace process. The EU and America have provided peacebuilding assistance and “the peace process is almost dying,” he said. And while Israel is not held responsible for the lack of progress, the Palestinians, Karim says, are under pressure.

But even if economic independence is achieved, warns Karim, “you cannot continue to ignore the fact that we have poor financial management in the PA”. He said reform was needed, likening the situation to surgery needed during a health crisis, even if it is painful.

Abu Zaid al-Nabali, owner of a major car dealership in Ramallah, West Bank, told The Media Line that the lack of financial assistance from the Gulf states, the US and the EU combined with two years pandemic, had a negative impact on its car sales. “People have less to spend and buying a car is no longer a priority for them. They have to feed their family.

Nabali added that if the situation did not improve, he would be forced to close his doors. “I have to cut my losses,” he said.

The PA’s economic crisis is not only financial but also inherently political. Political analyst Nour Odeh told The Media Line that the financial situation is not just the result of budget shortfalls, limited availability of funds or mismanagement, but that the government can never function effectively. under occupation.

“The occupation has total control, even over the revenues of this government. … It basically puts an artificial ceiling on the Palestinian economy and systematically impoverishes Palestinians,” Odeh said.

She said the loss of EU funding for the PA was purely political and due to one person: Hungarian Prime Minister Viktor Orbán. “He overrides the will of European parliamentarians and even the European Commission itself because of his very public political leanings, which are anti-Palestinian, pro-Israel and pro-occupation,” she said.

Odeh claimed that “the almost bankrupt government is politically beneficial to the US, the EU and Israel”, which she said want to weaken the PA, thus maintaining the status quo and prolonging the occupation.

Crystal Dunlap is an intern in The Media Line’s Press and Politics Student Program.

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