The struggling Palestinian economy

A sharp decline in international donations means Israel is digging deeper in its pockets to bail out the PA.

PA security v protesters hebron 370 (photo credit: Darren Whiteside / Reuters)
PA security v protesters hebron 370
(photo credit: Darren Whiteside / Reuters)
The Palestinian Authority (PA) is facing a severe financial crisis. It is finding itself in substantial arrears in paying suppliers, and during 2012, Israel twice transferred advance payments to the PA to allow Authority employees’ salaries to be paid on time. In the past few weeks the PA’s financial difficulties were brought to fore through a number of strikes and riots across the West Bank - triggered by substantial rises in living costs and taxes.
These popular protests were targeted at first at Salaam Fayyad, the embattled prime minister, and were subsequently broadened to include Palestinian President, Mahmoud Abbas.  Protesters have now begun demanding that both officials resign.
The current Palestinian fiscal crisis has been caused primarily by a shortfall in donor aid.  Foreign donors are the crutch on which the Palestinian economy relies, but those pledges are not coming through in their full amounts. However, the PA also suffered a significant failure in meeting its own budgetary estimates which project a financial gap of more than $150 million.
Last week, following a report by the World Bank warning of the deepening Palestinian fiscal crisis, the Ad Hoc Liaison Committee − that is, international donors to the PA (including Israel) - met in New York. Israel informed the committee of steps it had taken to relieve the financial pressure on the PA. These included the advanced transfer of NIS 380 million in taxes – customs revenues collected by Israel on the PA’s behalf – to enable the PA to pay the salaries of civil servants.
The Israeli delegation also announced that an extra 5,000 permits have been granted for West Bank Palestinians to work in Israel, with an additional 2,000 given overnight permits. It is estimated that over 100,000 Palestinians are earning their livelihoods directly from Israel, receiving salaries that are typically double those in the West Bank where the average monthly wage has been stuck for a long time at less than NIS 2000. Israel also reported that it had approved more than 300 Palestinian development projects in Area C – the part of the West Bank under full Israeli control – and that it was making progress with new master plans for the Area. Development in Area C is regarded as important by the international community for the future economic development of the PA.
So why is Israel continuing to bail out the West Bank’s imploding economy?  Quite simply because from Israel’s point of view, the alternative − a possible victory by Islamist Hamas in its fratricidal struggle for power against Fatah – would be a far worse scenario.
This also goes some way in explaining why Israel’s Foreign Ministry announced its intention to become involved in developing the Gaza Marine gas field, which is eventually expected to generate revenues that could contribute dramatically to Palestinian fiscal sustainability.
In 1999, British Gas was given the go-ahead by the PA to explore for natural gas off the coast of the Gaza strip. Israel was always envisaged as being the purchaser of any natural gas reserves discovered. By 2007 two exploratory wells had located Gaza Marine, the main field, some 36 kilometers west of Gaza City, and a second smaller field straddling the boundary between Gaza‘s and Israel’s territorial waters. The reserves in the two wells are estimated at 1 trillion cubic feet of natural gas. 
To put this in context, exploration for natural gas in Israel began more than a decade ago. By December 2010, Noble Energy had discovered both the Tamar and the Leviathan gas fields off the coast of Haifa. Tamar is estimated to hold about 8.4 trillion cubic feet of gas; Leviathan, around 17 trillion.
Until Gaza Marine can be exploited, however, the PA’s financial position is dire −  and the financial corruption which has dogged the PA since the days of Yasser Arafat does not help matters.
Last June, a PA court in Ramallah sentenced Mohammed Rashid, a former advisor to Yasser Arafat, and three other former PA officials in absentia after they refused to appear before the court.  Rashid, who served for nearly twenty years as Arafat's financial advisor, received a 15 year jail sentence after being found guilty of embezzlement and money laundering.  He was also fined $15 million and ordered to give back $34 million which he and others had stolen. 
One month later, the US House of Representatives’ Council on Foreign Relations held a hearing that centered on corruption within the PA. In a report given to the council, Elliott Abrams, Senior Fellow for Middle Eastern Studies, quotes Fathi Shabaneh, the man charged with rooting out public corruption within the PA, who resigned in 2010:
“In his pre-election platform, President Abbas promised to end financial corruption … unfortunately, Abbas has surrounded himself with many of the thieves and officials who were involved in theft of public funds and who became icons of financial corruption.”
Abrams sees Fatah’s future ability to defeat Hamas as being tied to public perceptions of Fatah being a political nest for corruption. That perception may also explain the decrease in international pledges of financial aid, on which − at least for the present − the PA’s financial viability depends.
The writer is the author of “One Year in the History of Israel and Palestine” (2011) and writes the blog “A Mid-East Journal” (