The Clearance Crisis and its Repercussions on the Palestinian Economy: From Financial Distress to Livelihood Challenges

Ramallah - "Al-Quds" dot com - Wisal Abu Alia

The Palestinian public finance is facing one of the most severe crises in its history, as Israel continues to withhold Palestinian tax revenues, known as "clearance funds," which constitute the main source of government income. With the value of the withheld funds exceeding 15 billion shekels, the Palestinian treasury has entered an unprecedented phase of financial pressure, which has affected the government's ability to meet its basic obligations and directly impacted public services, economic activity, and the living conditions of citizens.

As the crisis escalated and reached a stage of complete withholding of "clearance funds" in recent months, the repercussions expanded to include various economic and service sectors, amidst warnings of exacerbating poverty and unemployment rates and a decline in the Palestinian economy's ability to withstand accumulated challenges.

Clearance... The Lifeline of Government Revenues at the Heart of the Crisis

Moayad Afaneh, an expert in financial and economic policies, confirms that the continuous withholding of "clearance funds" since 2019, and its escalation to complete withholding since May 2025, has plunged Palestinian public finance into a severe crisis that has affected all aspects of government spending.

Afaneh points out that the crisis forced the government to launch an emergency program that included reducing working hours in ministries and public institutions, lowering the percentage of salary payments to employees to about 50% of the salary with a minimum of 2000 shekels, in addition to accumulating private sector dues.

For his part, Dr. Haitham Daraghmeh, an economics professor and expert in economic affairs, explains that "clearance funds" represent more than 65% of government revenues and constitute the main source for financing the Palestinian Authority's obligations. He adds that the continued withholding of these funds has led to an inflation of government debt and deepened the financial crisis, noting that the value of the withheld "clearance funds" exceeded 15 billion shekels, which deprived the treasury of its most important financial resource and weakened its ability to meet its obligations towards employees, the private sector, and service providers.

Dr. Daraghmeh emphasizes that the Palestinian government was already suffering from financial pressures resulting from a decline in foreign and Arab aid, but the withholding of "clearance funds" deepened the crisis unprecedentedly, and deprived the government of the ability to fulfill many of its operational and service obligations.

Direct Repercussions on the Health and Education Sectors

The financial crisis has clearly reflected on basic services, especially in the health and education sectors.

According to Afaneh, the scarcity of financial resources led to a shortage of medicines in government health facilities, and the operation of some government clinics for only one day a week, which affected citizens' access to health services.

In the education sector, the regularity of the educational process declined, as school attendance in many government schools was limited to three days a week, equivalent to about 60% of the usual attendance, which widened the gap of accumulated learning loss and cast a shadow over the quality of education and the future of students.

Dr. Daraghmeh believes that the repercussions of the crisis were not limited to government institutions but extended to related economic sectors due to the decline in public spending and the government's inability to pay dues to suppliers and service providers.

Economic Stagnation and Unprecedented Contraction

The clearance crisis directly affected Palestinian economic activity, which witnessed a sharp decline recently.

Afaneh confirms that the Palestinian economy declined by about 24%, in parallel with an increase in unemployment rates to about 46%, and an increase in poverty rates to nearly 41%.

In turn, Dr. Daraghmeh describes the current economic situation as "unprecedented stagnation," explaining that the decrease in cash liquidity in the markets, the decline in government spending, and the irregular flow of foreign aid are factors that contributed to the paralysis of many economic activities.

He adds that the private sector is facing a complex crisis, as it provides services to the government, which has become unable to pay its obligations, and on the other hand, it suffers from a decline in demand and consumption and a decrease in liquidity, which has led to the faltering of many economic establishments.

Purchasing Power Declines and Markets Pay the Price

Bashar Al-Saifi, Undersecretary of the Ministry of National Economy, indicates that "clearance funds" used to inject approximately one billion shekels monthly into the Palestinian market, which was a major driver of economic activity.

He says that the decline in these flows as a result of Israeli measures has severely damaged the purchasing power of citizens, especially since the segment of government employees represents a large part of the consumer force in Palestinian society.

These repercussions are embodied in the daily lives of employees. A government employee from Nablus, who preferred to remain anonymous, says that the continued payment of salaries in partial percentages has placed thousands of families under increasing living pressures, as the available income is no longer sufficient to cover basic needs such as food, transportation, education, and monthly obligations. He adds that the lack of clarity regarding salary payment dates and percentages makes family financial planning more difficult, in light of the continuous increase in living costs.

He points out that many public sector workers were forced to borrow or postpone the payment of their financial obligations to meet daily expenses, which led to the accumulation of financial burdens on families. He explains that the effects of the crisis did not stop at employees but extended to local markets that largely depend on the purchasing power of this segment, as the decline in spending reflected on commercial activity and led to further stagnation in various economic sectors.

Al-Saifi adds that the crisis worsened with the continued prevention of large numbers of Palestinian workers from working inside the Green Line, which contributed to rising unemployment and declining income levels. The services and entertainment sectors were also severely affected, as citizens tended to spend only on basic needs, while some service sectors recorded a decline exceeding 90%.

Poverty and Unemployment... Vulnerable Groups Bear the Brunt

The repercussions of the crisis are more evident on poor and low-income groups.

Afaneh confirms that these groups were the most affected by the decline in public services, due to their inability to resort to paid alternatives in the health and education sectors. The decline in employment opportunities and market stagnation also increased living pressures on Palestinian families.

For his part, Dr. Daraghmeh confirms that the continuation of the crisis threatens a further rise in unemployment rates, especially in light of the decline in employment opportunities in both the public and private sectors, and the widening circle of unemployed graduates, including specializations that previously enjoyed high employment opportunities.

Searching for Solutions... Between Financial Management and Strategic Reform

Regarding ways to confront the crisis, Afaneh believes that the measures taken by the Ministry of Finance to rationalize expenditures and enhance revenues contributed to providing a margin of flexibility to manage the crisis, but they remain insufficient given the depth and prolonged nature of the problem.

He stresses the need to adopt a comprehensive national strategy based on international, diplomatic, and legal pressure to release the clearance funds, in addition to providing a financial safety net by international donors to support Palestinian public finance.

He also calls for a review of the Paris Economic Protocol and a reformulation of the financial relationship with Israel to ensure greater Palestinian control over its financial resources.

Dr. Daraghmeh agrees with this proposal, emphasizing that diplomatic action to restore the flow of "clearance funds" represents an urgent priority, in parallel with enhancing local revenues and controlling expenditures, despite the limited ability of these measures to compensate for the withheld revenues.

Al-Saifi, meanwhile, stresses the importance of international community intervention to stop Israeli measures that directly affect the Palestinian economy, warning that the continued withholding of "clearance funds" will lead to further economic contraction and deterioration of living conditions.

The clearance crisis reveals the fragility of the Palestinian economy's financial structure and its close link to political transformations and Israeli measures. While the government has managed to manage the crisis through emergency measures and financial austerity, the continued withholding of these revenues threatens to exacerbate pressures on public services, the private sector, and Palestinian families. With increasing poverty and unemployment rates and declining economic activity, there is an urgent need for effective political and international action to ensure the release of "clearance funds," in parallel with economic and structural reforms that enhance the Palestinian economy's ability to withstand and sustain itself.