The Palestinian economy from financial collapse to political exposure

Marwan Emil Toubasi

The Palestinian economy is no longer on the brink of collapse, as we once believed. Rather, it has actually crossed the line, falling into the abyss of a profound structural collapse, as confirmed by a World Bank report issued a few days ago, in late June 2025. The report, which went beyond the usual technical description, offered a sharp and direct diagnosis of the political and economic vulnerability plaguing the Palestinian National Authority, warning of the collapse of an entire system, not just a passing crisis in the management of public funds.
The public debt ratio rose to 86% of GDP by the end of 2024, with expectations of exceeding 96% within two years. However, what is more alarming than this figure itself is that more than half of this debt is cumulative arrears, including unpaid salaries for Palestinian Authority employees, dues to hospitals, pharmaceutical companies, and others, and unpaid obligations to the pension fund and the private sector, which amounted to approximately $6 billion in total, according to the aforementioned World Bank report. This exposure does not only indicate a liquidity imbalance; it also reflects a structural failure in a political-economic model based on crisis management through transfer and borrowing, rather than on planning and national sovereignty, which is unavailable due to the ongoing occupation and its refusal to honor all agreements.
The Palestinian National Authority, which emerged under a flawed political equation and under the occupation's policy of undermining its standing and role, has become a depleted entity, borrowing from local banks to pay salaries and accumulating debts at the expense of citizens and the future, threatening the stability of the entire banking system. In contrast, the Palestinian National Authority lacks real tools for action, neither at the level of economic policies nor at the level of political decision-making, in light of the occupation and the escalation of its crimes, policies and measures, the division, dependency, and the absence of popular electoral legitimacy after its implementation has been stalled for several reasons for two decades.

It is important to note here that the World Bank report itself, which, despite its significant figures, was not a coincidence at this juncture, is not without a political dimension. The World Bank, as is well known, is not entirely neutral; rather, it represents a tool in the global economic and political system led by hegemony by the United States. In this sense, it sometimes reflects the US administration's priorities of continuing to subjugate peoples, rather than being an impartial voice for their suffering. Here, the timing of the report's publication and its shocking content cannot be separated from an ongoing US effort to pressure the Palestinian Authority to regenerate itself in line with the requirements of a "renewed authority" subject to the conditions of the current era and aligned with Washington's political and security priorities in the region, rather than with its national liberation agenda.
Moreover, economic pressures are not limited to the blockade and the piracy of clearance funds. They are also deepened by ongoing Israeli measures against the Palestinian financial system. As a result of Palestinian banks' dependence on the Israeli banking system, and specifically due to the extremist policies of Israeli Finance Minister Bezalel Smotrich, the Palestinian banking system is experiencing a serious crisis. This is manifested in the accumulation of Israeli shekels in Palestinian banks, and Israel's refusal to allow their transfer or exchange according to previous mechanisms. This leads to a liquidity crunch, paralyzing financial activity, and threatening the stability of the banking system and the Palestinian economy as a whole.
Instead of confronting these challenges with a unified, inclusive, and resilient political and societal discourse, the Palestinian government is moving toward decisions that perpetuate its disconnection from social and economic reality and increase the burden on the population. This was recently demonstrated by its decisions to reduce cash transactions and impose payment through bank credit cards, despite a dramatic and, in some ways, unjustified price increase. Although such moves may be justified within the framework of monetary policies overseen by the Palestine Monetary Authority, in our current Palestinian context, they reveal a profound structural flaw. Millions of Palestinians, particularly in marginalized and impoverished areas, lack credit cards, bank accounts, or even a real ability to integrate into an already fragile formal financial system. This makes these policies the exclusive domain of specific classes and isolates large segments of the population from even the most basic forms of economic participation.
Here, one manifestation of the crisis of the Palestinian political system itself is evident, as fateful decisions are made in isolation from the needs and concerns of the people, sometimes unhelpful to the slogans of steadfastness and survival. Technocratic tools are imposed in a context that lacks even the most basic elements of national sovereignty on the ground, as described by the President earlier, making it an authority without authority. The financial deterioration is merely one of the consequences of the long-standing absence of a broader political process, in the absence of an effective international role to end the occupation and implement the two-state solution, as supposedly entails the establishment of an independent, sovereign Palestinian state, which the occupation is sending and the US administration does not actually want. This has been further entrenched in the absence of accountability, transparency, and the separation of powers, as well as the continued division caused by the coup and its repercussions over the past years, and the replacement of the national project with a network of interests governed by security and financial considerations and internal loyalties, or as a result of the emergence of centers of influence and the existence of plans to separate the West Bank and Gaza, separating our people from the vision of national liberation and its requirements.
The recent Israeli war of extermination, ethnic cleansing, Judaization, and settlement expansion and annexation policies, fully supported by the United States, amid international silence on the genocide in Gaza and the ethnic cleansing in the West Bank and Jerusalem, were not the beginning of the collapse. Rather, they were the deafening explosion of a cumulative crisis caused by the Zionist colonial mentality. The economy in Gaza shrank by 83%, and by 17% in the West Bank, with unemployment reaching 80% and 33%, and a comprehensive decline in production, consumption, and investment indicators. Nevertheless, official discourse continues to speak in the language of crisis management rather than confrontation, as if we were experiencing a temporary crisis capable of being repaired, rather than a comprehensive structural collapse requiring a comprehensive and integrated political and economic vision.
The World Bank's "reform" recommendations appear technical on the surface, but they ignore the political environment created by the continued settlement occupation and its schemes, which renders these recommendations unworkable or even unconsidered. How can we reform an economy without sovereignty? How can we balance a budget under occupation and its escalating measures? How can we implement radical reforms amidst political divisions and today, amid escalating war crimes that have rendered Gaza uninhabitable and even threatening displacement, as well as most West Bank camps? In light of the increasing settler terrorism targeting villages, the Palestinian Authority's lack of control over crossings and borders by Israeli decision, in addition to the state of institutional paralysis and the absence of genuine popular confidence?
The truth is that what we need today goes beyond financial solutions. We are facing a paradigm crisis, a failed project, and a structural deficiency that requires a rethinking of the relationship between the Palestinian National Authority (PNA), which was supposed to transform into a state but never did, and the people and the economy. We also need to redefine the role of the PNA within the framework of its relationship with the PLO as its frame of reference, which itself needs to enhance its role and reform its institutions with democratic mechanisms. It is no longer possible for the PNA to continue playing the role of the "employer" who pays salaries as a rentier model that also relies on international aid, which, according to the report, has either disappeared or declined from 27% of GDP in 2008 to just 2% in 2024. This aid, meanwhile, is incapable of protecting even the most basic rights, stimulating development, or protecting our people. We need national policies that rehabilitate the concept of political resistance to the state under occupation, not as a local administration, but as a liberation tool with a resistance economic project.
This cannot be achieved without a fundamental shift in national priorities. The general budget must be redirected toward health, education, infrastructure, and industry, rather than toward specific privileges or encouraging consumerism without production. A fair tax system must be established that holds high-income earners and those with privileges accountable and redistributes wealth fairly. Flooding the market with indiscriminate imports from the occupation must stop, and a genuine disengagement strategy from the Israeli economy must be initiated, regardless of its temporary cost. Alternatively, imports of goods with a national alternative or those that merely contribute to the expansion of the consumer market at the expense of production must be reduced.
All of this must be accompanied by stimulating local production, as I mentioned, encouraging small projects, empowering women and youth, and developing the sectors of agriculture, industry, renewable energy, technology, and advanced manufacturing. Economic liberation is not a slogan, but a policy. The economy cannot be merely a means of remaining in power. Rather, it must be a tool for struggle, a space for strengthening steadfastness and democratic national liberation, and a platform for building a different future by first ending the occupation.
Ultimately, no reform can succeed without a new socio-economic contract, one founded on trust, justice, and transparency. The contract we need is not with donors or international institutions, but with our own people. We want an economy that restores dignity to the Palestinian people and makes development a national project, not merely the management of a protracted crisis.
Today we face a moment of truth: either we continue the slow collapse, or we muster the courage to rebuild a new model that reconnects the economy to national liberation, not submission, by redefining our national unity project based on independent decision-making.