U.N. Agency: PA Economy On Brink Of Collapse

The report cites Israeli withholding of taxes and American aid cuts as chief cause.

Palestinian Authority President Mahmoud Abbas speaks at the United Nations, February 2018 (photo credit: LUCAS JACKSON / REUTERS)
Palestinian Authority President Mahmoud Abbas speaks at the United Nations, February 2018
(photo credit: LUCAS JACKSON / REUTERS)
The United Nations Conference on Trade and Development (UNCTAD) is warning of an imminent collapse of the Palestinian Authority (PA) economy in a new report that was presented in the West Bank city of Ramallah on Tuesday.
The report said the causes of the situation were Israel’s withholding of some of the tax revenue it collects on behalf of the PA, cuts in American financial support, and a decline in grants and foreign aid from countries and organizations.
Mahmoud Elkhafif, a Coordinator for UNCTAD, told The Media Line that “some of the donor states have decreased their contributions to the PA, while Israel has implemented Paris Protocols in such a way that has put the Palestinian leadership under pressure and forced it to shrink its budget.” 
The Paris Protocol, also called the Protocol on Economic Relations, was signed by Israel and the Palestinian Liberation Organization (PLO) as part of the 1995 Oslo II Accord. It specifies that the Israeli government will collect tax revenue on behalf of the PA for a commission of 3 percent, transferring the balance to the Palestinian Interior Ministry. 
Last year, the Israeli cabinet decided to withhold funds to the PA in the amount equivalent to what the PA pays to Palestinians held in Israeli prisons, and to the families of Palestinians who died in clashes with Israeli soldiers. While that amount represents about 10 percent of the total taxes and tariffs collected, PA President Mahmoud Abbas previously refused to accept the remainder of the monthly installments, which total about $150 million.
"The Israeli move to deduct from the Palestinian tax money isn’t within the limits of the Paris Protocol,” Elkhafif said. He also noted the impact of Israeli military checkpoints in the West Bank, which he said “prevents the movement of people and trade.”
He also cited Israel’s “economic blockade of the Gaza Strip,” which he said “prevents raw materials from entering Gaza, while destroying its infrastructure, as well as its ability to conduct internal or external trade.” 
Abdul Rahman Al-Azmi, a spokesperson for the Palestinian Ministry of Economy, told The Media Line that the Palestinian economy is “truly collapsing after about 65 percent of PA revenues are put on hold, economic movement paralyzed, and purchasing power being depressed by 50 percent.” 
As an example, he said that in February of this year, Israel withheld about $138 million in tax revenue, which is about 65 percent of the PA’s total monthly revenue. As a result, the PA was forced to pay its employees only half of their salaries.
“The Israeli occupation has a big role in what is happening to our economy; we can't use our natural resources or grow most of our lands because of Israeli control over it,” said Al-Azmi, “which is the result of an Israeli approach that refuses the independence of the Palestinian economy.” 
A Palestinian-American economic analyst who spoke to The Media Line on condition of anonymity, said the PA “is missing the most basic elements required to build an economy, which include freedom of movement of people, products, raw materials, and access to airports, access to seaports. 
“It is also missing a local currency and is dependent on Israel's currency," he continued, "and is dependent on Israel's collection of taxes, which it uses for political and economic pressure.” That, the source added, forces the Palestinians to rely on aid from other nations.
The UNCTAD report said economic prospects for the PA in the short term are gloomy, with no signs of change. 
“One out of every three people in the Palestinian labor market is unemployed," according to the report. “In Gaza, the unemployment rate is 50 percent and the poverty rate is 53 percent."
Wael Aldaya, an economic analyst and head of the research and studies department at the Islamic University of Gaza, told The Media Line that the PA economic crisis started in 2017 when PA revenues decreased and most donor countries lessened their contributions.
Also adding to the economic woes, the PA reached the ceiling of $500 million it could borrow from local banks. 
In 2018, the Trump administration reduced aid to the PA and to projects in the West Bank and Gaza Strip by roughly $300 million. In addition, more than $200 million in aid from UNRWA-administered programs was cut. Palestinian-American relations have been tense since the PA imposed a diplomatic boycott on the White House in protest of President Donald Trump’s December 2017 recognition of Jerusalem as Israel’s capital.  
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