10 billion held back and an economy suffocating: Is collapse imminent?

The Palestinian economy stands before an unprecedented crisis, where financial and political crises intertwine in a scene that threatens a complete collapse. With withheld clearance funds, a sharp decline in international aid, and accumulated debts, the Palestinian Authority finds itself in direct confrontation with a worsening financial deficit, amid fundamental questions about the future of the national economy.

For a long time, clearance funds – the taxes collected by Israel on behalf of the Authority – have been the main source of financing for current expenditures, covering about 70% of public revenues. However, these vital funds have turned into a tool of pressure in the hands of the occupation, withheld or significantly deducted unilaterally for political reasons. According to the Ministry of Finance, the total amount deducted since 2012 until early 2025 is approximately 20.6 billion shekels, or about 5.6 billion dollars, while estimates indicate that the amounts currently withheld by Israel reach about 10 billion shekels, a huge figure that is more than three times the monthly local revenues of the Authority. This reality places the Authority in a continuous financial chokehold and confirms that clearance funds are no longer a stable resource, but rather a political weapon used to financially extort the Palestinians.

Concurrently, international aid has sharply declined. While it peaked in 2008 at over 1.3 billion dollars, it has fallen in recent years to less than 500 million dollars, and in some years dropped to below 300 million. More importantly, the pattern of support has also changed, from direct transfers to the budget to funding scattered projects through international institutions, depriving the government of the financial maneuvering room it needed to confront crises.

In light of this contraction in resources, the salary bill has emerged as the largest internal burden. The cost of salaries for employees, retirees, and allowances for prisoners and families of martyrs amounts to about 1.05 to 1.1 billion shekels monthly, equivalent to 272 to 300 million dollars. This figure absorbs more than half of current spending, making the Authority unable to cover it fully, leading to a policy of partial salary payments, which has negatively impacted the lives of hundreds of thousands of Palestinian families.

The equation becomes more difficult when we realize that local tax revenues do not exceed 450 million shekels monthly, which is less than 40% of the salary bill alone. This gap reveals a structural flaw in the financial system and clarifies that the Palestinian economy lacks sufficient self-financing tools to cover even basic expenses.

But the crisis does not stop there. The size of public debt – both domestic and external – has exceeded 10 billion dollars, a figure that is almost equivalent to the total annual salaries. As the deficit widened, the Authority resorted to borrowing from local banks to cover expenses, which weakened liquidity in the market and negatively affected the private sector, exacerbating the slowdown in economic growth.

The results were clear in the markets: commercial stagnation, a sharp decline in purchasing power, and a significant drop in local and foreign investments due to eroded confidence in financial stability. The citizen bears the brunt of the burden, facing incomplete salaries, high living costs, and a murky future. With the start of the school year, employees find themselves unable to pay school or university fees for their children, while their deducted and delayed salaries are insufficient to cover the essentials.

It is an illusion to believe that international support can compensate for clearance funds, or that clearance funds are sufficient to revive the economy. Aid continues to decline, and donors are no longer willing to finance a budget burdened with salaries and debts. As for clearance funds, they barely cover operational expenses and do not allow any room for investment or building a sustainable economy.

Despite this reality, the government has not announced any real emergency plan commensurate with the depth of the crisis. Relying on patchwork solutions, such as paying half salaries or repeated borrowing, simply means extending the life of the crisis rather than solving it. There is an urgent need for courageous decisions that include restructuring public spending, rationalizing salaries, and expanding the tax base by integrating the informal economy and combating tax evasion, while ensuring greater tax justice.

Resources must also be directed towards building a real productive economy, relying on sectors such as industry, agriculture, and technology, instead of continuing a model based on consumption and dependence on external sources.

In short, the crisis is no longer just financial, but existential. Exiting it requires true political will and courage to face painful realities. We must either begin serious reform now or continue on a path toward a collapse that could become a reality at any moment.