Palestinian Economy Plunges as Israelis Withhold Tax Transfers
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The central bank governor of Palestine noted that the West Bank is undergoing tremendous economic damage in the wake of the Israeli decision to keep $130 million a month in Palestinian income. This comes on the heels of Palestinians joining the International Criminal Court, which may charge Israel with war crimes.
The central bank governor of Palestine noted that the West Bank is undergoing tremendous economic damage in the wake of the Israeli decision to keep $130 million a month in Palestinian income. This comes on the heels of Palestinians joining the International Criminal Court, which may charge Israel with war crimes.
A diplomat has gone on record in saying that the Palestinian financial system could collapse if payments do not resume by June of this year. So far, the withholding of over $500 million has forced the Palestinian Authority to cut salaries by 40 percent. State employees have already borrowed around $600 million in loans, and the Palestinian Authority has borrowed $1.5 billion from the banks, the maximum allowed under the Palestinian Monetary Authority.
Palestinians on the Brink
The government is relying on emergency reserves to fund the economy, and officials may not be able to satisfy loan obligations. The deficit is currently 15 percent of GDP. And since the tax revenues account for two-thirds of the country’s income, the Palestinian region is going into free-fall as the months go by. The Palestinians may also face cuts from the U.S. Congress if Israel faces charges from the ICC. Israelis previously withheld funds from Palestine back in 2006, 2007 and 2008. The difference is that the economy is fragile now more than ever before and many donors have not contributed as much money in the past few months.
Israelis Benefit from Cheap Labor
The Palestinian economy will shrink and economic output expects to decrease. Also, the unemployment rate is 25 percent, fueling violence and instability. Around 130,000 people from Palestine are crossing the border and looking for work, many of them without permits. Israelis are already planning to accommodate 200,000 new workers.
And even though the West Bank benefits from more of its citizens finding employment in Israel, the region is also drawing protests and continued unrest. The Israeli military is one faction that is criticizing the withholding move, stating that the decision is fueling unrest in the West Bank. A report from the IMF noted that the Israeli government must resume the transfers to ease growing instability.
Who Will Cave?
The Israelis and Palestinians are currently at a standoff, and it is hard to say who will budge first. But some are saying that the transfers will be lifted if Prime Minister Benjamin Netanyahu is convinced that he needs to form a new collation government in the coming weeks. However, Netanyahu may decide to maintain the transfers to keep pressure on the Palestinians.
