No Ideal Solutions: Managing the Economic Crisis Realistically

In previous articles, I attempted to diagnose the features of the dual crisis afflicting the Palestinian economy, represented by public finance imbalances on one hand, and the limited capacity of the macroeconomy for recovery and growth on the other. However, theoretical diagnosis, no matter how accurate or data-driven, remains incomplete without moving to the more pressing practical question: What can be done to halt the accelerating economic deterioration in a complex regional environment, and amidst the ongoing suffocating Israeli measures that exacerbate the ambiguity of the economic and financial landscape?The realistic answer does not lie in searching for a "comprehensive solution" capable of addressing all issues at once, but rather in formulating a practical framework for crisis management that balances gradually reducing losses and maintaining a minimum level of stability, while keeping a window open for future recovery and seizing opportunities when conditions improve. The current priorities are centered on three main axes: recalibrating public finances, enhancing labor market flexibility, and preserving existing investment assets.First, recalibrating public finances requires a shift from traditional austerity measures to fiscal policies that enhance the efficiency of public spending and redefine the government's role in the economy to suit the Palestinian context. Unsustainable austerity and emergency budgets in an economy already suffering from weak aggregate demand may exacerbate the recession instead of containing it. What is needed is a move towards intelligent rationalization of public expenditures, distinguishing between productive and non-productive spending, while maintaining the minimum necessary social spending to avoid further societal instability.Conversely, enhancing local revenue collection from various sources remains crucial for reducing the fiscal deficit and providing liquidity. However, relying on increased revenues through traditional tools without risking stifling the fragile private sector, especially small and medium-sized enterprises that constitute the majority of operating companies in Palestine, is not feasible. Therefore, there is a need to focus on improving collection efficiency rather than raising the tax burden, enabling the government to increase collection on one hand, and helping officially operating economic establishments play their role as drivers of economic growth, job creation, and production enhancement on the other.In addition to adjusting public finances, there is also a need to adopt more cautious management of domestic debt, which has exceeded three billion dollars according to the latest estimates. This debt constitutes a necessary financing tool given the exceptional circumstances and limited liquidity faced by the Palestinian government. At a time when public debt management has become a risky path, there is a need to search for innovative mechanisms to manage these debts, such as converting part of them into long-term bonds supported by appropriate guarantee mechanisms, enabling the government to meet its obligations not only to the banking sector but also to gradually repay arrears owed to civil servants and private sector suppliers.Second, addressing negative fluctuations in the Palestinian labor market requires adopting smart policies capable of reducing high unemployment rates, which reflect a structural crisis beyond the limits of the traditional economic cycle. Given the Israeli restrictions on movement and trade, it has become necessary to think outside traditional frameworks. In the short term, temporary intervention programs such as wage subsidies or emergency employment programs may be needed, not as sustainable solutions, but as practical tools to absorb shocks and prevent deeper deterioration in the labor market.In the medium term, investing in skills and technical education may be one of the few growth paths despite the restrictions, by enhancing employment in local productive sectors including industry and agriculture, in addition to strengthening the role of the digital economy by encouraging remote work, which allows overcoming some of the geographical restrictions imposed on Palestinian labor and connecting it to regional and international markets.Third, in an environment characterized by high political and economic risks, talking about attracting investment becomes closer to theoretical ambition. The most urgent priority has become preventing the erosion of existing investment assets, as local capital flight may be more costly than the absence of new investment flows. As practical solutions, tools such as credit guarantees through international financial institutions and multilateral development banks can play an important role in helping companies survive. Furthermore, accelerating the pace of reforms that enhance access to finance may help design innovative investment tools that are appropriate for the high level of risk in Palestine, and capable of attracting additional capital, whether from the Palestinian diaspora or through investment funds and Arab and Islamic sovereign wealth funds.Certainly, regional tensions contribute to exacerbating the uncertainty about the future of the Palestinian economy, through their potential effects on international support levels and on trade and financial flows. Nevertheless, the scene is not without narrow margins for maneuver that can be explored, such as repositioning some supply chains to create conditions for supporting import substitution in a number of essential goods, and building economic partnerships in productive sectors.Perhaps the most important transformation that should be realized is that the Palestinian economy is not facing a fleeting crisis, but an extended state of complex fragility and successive shocks. In such a context, the realistic goal becomes managing the crisis realistically, by minimizing losses as much as possible, and maintaining the continuity of economic activities in various sectors, without sliding into a state of deeper instability.Ultimately, the Palestinian economy today stands between two choices: continued economic and institutional erosion in the absence of well-considered interventions, or practical resilience based on a pragmatic approach that balances the possible and the hoped for, recognizes the limits of reality, and works to determine who will remain standing when conditions change.