Direct annual donor funding to the Palestinian Authority has dropped by a billion dollars over the last thirteen years, according to a World Bank report issued Tuesday that warned the PA faced a $1.36 billion deficit this year.
The PA’s financial situation “remains fragile due to high public spending and very low external financing,” the World Bank wrote in the document that was released in advance of the Ad Hoc Liaison Committee meeting in Norway on November 17.
The group of 15 countries and international entities oversee donor funding for the Palestinians, including for humanitarian projects. It is also one of the few forums that bring Palestinians and Israelis together in direct dialogue.
According to the World Bank, direct donor funding to the PA has dropped by 85% in the last 13 years, from $1.2b. in 2008 when it was at an all-time high, to $184 million this year – an all-time low.
Donor funding fell by 38% in the last year, after standing at $488m. in 2020. The World Bank blamed the sharp decline in 2021 on lack of donations from Arab countries in the Gulf, a delay in European Union financial support, and low contributions to the World Bank’s Multi Donor Trust Fund.
The bank called on the international community to increase its financial support to the Palestinian Authority. It warned that continued lack of funds could impact the PA’s ability to combat COVID-19 and pay civil servant salaries.
“Lack of additional financing would force the PA to scale back on some of its medical and social expenditures in response to the COVID-19 pandemic, exacerbating the health situation. It may also result in the PA reducing wage payments, as it has done in the past,” the World Bank explained.
The report also spoke of the harm caused to the PA deficit by Israel’s policy of financially penalizing the PA for providing monthly stipends to terrorists in Israeli jails and the families of Palestinians slain in executing terror attacks.
Israel withholds the sum of those terror stipends from tax fees it collects on behalf of the PA and transfers to its coffers.
The World Bank explained that Israel in 2021 had first withheld NIS 42 million monthly, then NIS 50m. and increased the sum to NIS 100m. in August to offset terror deductions that were not withheld in 2020.
In a turnaround move, however, Israel then transferred a loan of NIS 500m. to the PA, the World Bank explained.
It was a move that brought down the projected 2021 PA deficit from $1.69b. to 1.36b., the World Bank explained.
“Efforts by all parties are critical to avoid a crisis as without additional financing, the PA may encounter difficulties in meeting its recurrent commitments toward the end of the year,” the World Bank said.
The PA’s financial situation is more dire because it has reached the limit of what it can borrow, the World Bank said.
PA “borrowing exceeded $2b. in 2020, reaching $2.5b. as of August 2021,” the report explained.
In addition, the World Bank said, Israeli banks have “signaled plans to limit or terminate correspondent banking services to Palestinian banks in recent years” due to fear of money laundering and terror financing.
The report also highlighted Palestinian and Israeli financial reforms that could increase revenues.
The PA should do more to encourage private sector development through regulatory improvement and land registration reform, the World Bank said.
“Limited land registration and unclear property rights, even within Palestinian controlled areas, are a major challenge for urban housing and business development,” the report stated.
Israel can help by easing restrictions on movement and access of goods and people, the World Bank said. It can address some of the “fiscal leakage” issues, such as electronically linking the Israeli and Palestinian VAT system and reducing the fees it charges the PA, the bank explained.
Israel should also transfer to the PA exit fees it collects at the Allenby Bridge into Jordan and taxes levied on Palestinian business in Area C of the West Bank, which it has withheld, the World Bank stated.
The bank painted a grim picture of job prospects in the Palestinian territories, noting that unemployment in the second quarter of 2021 was 16.9% in the West Bank and 44.7% in Gaza, with 59% of the Gaza population living below the poverty line.
Still it said, the Palestinian economy had begun to rebound from COVID-19 in the West Bank, with 6% projected growth.
It attributed this in part to increased work permits Israel had provided to Palestinians for jobs in the settlements or in sovereign Israel. Customs collected on raw tobacco and petroleum also had a positive impact on the economy.
“The current consumption-led growth in the West Bank reflects a rebound from a low base in 2020, exacerbated by the COVID-19 crisis,” said Kanthan Shankar, World Bank country director for the West Bank and Gaza.
Shankar warned however that the PA economy lacks “growth drivers for sustained positive impacts on the economy and quality of life. The way ahead is still uncertain and depends on coordinated actions by all parties in revitalizing the economy and providing job opportunities for the young population.”