The mounting financial pressures on the Palestinians’ self-ruling entity have sent its debt soaring to $3bn and led to a severe contraction in its estimated $13bn economy for the first time in years, PMA head Azzam Shawwa told Reuters news agency.
“We are now going through a critical point,” Shawwa said with respect to Palestinian President Mahmoud Abbas’s Western-backed Palestinian Authority (PA), which exercises limited self-government in the occupied West Bank.
“What’s next, we don’t know. How we are going to pay salaries next month? How are we going to finance our obligations? How will daily life continue without liquidity in the hands of people?” asked the head of the PMA, which is the Palestinians’ equivalent of a central bank.
“I don’t know where we are heading. This uncertainty makes it difficult to plan for tomorrow,” Shawwa said during a visit to neighbouring Jordan.
The steep cuts in US aid over the past year were widely seen as an attempt to pressure the PA to return to the negotiating table after it cut off political dealings with the administration of US President Donald Trump in 2017.
That move followed Trump’s decision to recognise Jerusalem as the capital of Israel, and to move the US embassy to the city despite its internationally disputed status, reversing decades of US policy and practice.
The White House wants the Palestinians to engage with a long-delayed Middle East peace plan drawn up by Trump’s son-in-law, Jared Kushner.
The plan’s economic component is due to be unveiled at a conference in Bahrain next week, which the Palestinians are boycotting, citing pro-Israel bias by Washington.
Worsening the PA’s plight, Shawwa said, is the fact that Arab countries had failed to honour their donor pledges, providing just $40mn a month, which barely dented the PA’s financing gap. Half of that sum came from Saudi Arabia.
The PA has had to increase borrowing from 14 banks to weather the crisis, Shawwa said. Around a third of the $8.5bn in bank loans and facilities is owed by the PA, and the remainder by the private sector.
“Without that (borrowing) there would have been a financial collapse. I have worries for the first time over financial stability,” Shawwa said.
The once-flourishing West Bank economy, which saw 3.3 percent average growth in recent years, has now gone into the red, Shawwa said.
The sudden layoff of thousands of people once dependent on US-financed projects worsened government finances through lower tax collections and resulted in higher defaults on bank loans from troubled firms, he added.
“We are being fought by the most important power in the world,” Shawwa said, alluding to the Trump administration.
The only thing staving off a major economic crisis was cash earned by the more than 100,000 Palestinians who work in Israel, and remittances from Palestinians working abroad.
Shawwa, who has been invited to attend the Bahrain conference, said it was difficult to see how any plan would go ahead without willing Palestinian partners.
“Is it in the interest of America to break the Palestinian economy?” he asked.