An Overview of the World Bank Report on Public Spending for the Palestinian Authority

The World Bank issued a report at the end of June last year concerning public spending by the Palestinian Authority and priorities in light of the worsening financial crisis. The report described the economic situation as "catastrophic", following the ongoing Israeli war that began in 2023. Although the data does not reflect the depth of the financial crisis in recent months, it raises an alarm, possibly the last, regarding the public financial crisis in Palestine and the looming structural collapse unless there are urgent interventions. It also points to the deteriorating Palestinian economy amidst the total collapse of economic activities in the Gaza Strip and the significant damage to the economy in the West Bank due to closures, alongside the systematic destruction of infrastructure in the northern West Bank, declining business cycles, a slowdown in production rates, and unemployment reaching unprecedented levels.

The World Bank report included important data regarding the state of public finances and the Palestinian economy, noting that the public debt of Palestine, including various government obligations, reached 85.7% of the gross domestic product by the end of 2024, with expectations of an increase in 2025. These levels indicate a risk of entering a suffocating debt crisis. The report also contained alarming data regarding the debts of the Palestinian Authority, whether owed to public employees, who have faced a crisis regarding their salaries since November 2021, or suppliers, which threatens the stability of the private sector and limits its ability to grow, or even to continue supplying the government sector.

Regarding external aid, it has sharply declined from about 27% of GDP in 2008 to just 2% of GDP in 2023. Amid the acute financial crisis, which has persisted for years, the World Bank report indicated that the government resorted to excessive domestic financing through borrowing from banks, placing significant pressure on the banking sector. In terms of the Palestinian economy, it recorded its worst contraction in decades, with GDP shrinking by 27% during 2024. The report also addressed the state of the pension and retirement fund, which is facing a deep crisis, limiting the Palestinian Authority's ability to meet its current and future obligations to retirees and having a substantial impact on the pension rights of current and future generations.

The report noted that the causes of the financial crisis are not limited to the ongoing war but are cumulative, resulting from multiple fundamental factors, including Israel's absolute control over crossings and borders, and areas classified as (C), which constitute about (61%) of the West Bank area. It also pointed to the internal Palestinian division, the ongoing blockade of the Gaza Strip since 2007, continuous deductions from clearance revenues, and the sharp decline in external support for the Palestinian Authority. Furthermore, the report detailed issues related to the payroll and wage bills, the pension system, the health system, and the educational system in Palestine. The World Bank report put forward a series of urgent recommendations to save the Palestinian economy and public finances from structural collapse, calling for the launch of a sustainable financial response plan in coordination with the international community, and efforts to stop Israeli deductions from clearance revenues and ensure their consistent flow, in addition to implementing substantial reforms in public financial management in Palestine.

In practical terms, the report indicates the depth of the current financial crisis, which threatens the existence of the Palestinian National Authority, especially as the horizon of the financial crisis remains open. Additionally, Israeli actions on the ground exacerbate the crisis even more than what was mentioned in the report, as Israel has held all clearance revenues for the second consecutive month and has worked in recent months to raise the value of deductions to about 70% of clearance revenues, in addition to tightening its blockade and closure of the West Bank with around 900 gates and checkpoints and continuing to prevent workers from returning to their jobs inside the Green Line except for a small number. The threat to sever banking relationships and the crisis of currency accumulation all necessitate unprecedented action at the highest political levels. Technical solutions, however important, will not suffice; they have already been exhausted, and even implementing reform plans requires financial resources. Therefore, there is an urgent need to launch a global campaign to save public finances and the Palestinian economy, providing immediate and necessary support before structural collapses that could have a "domino effect" across multiple levels and sectors. There is also a need to activate an Arab safety net and continue serious international pressure on Israel to release Palestinian funds, in addition to completing internal reform programs and ensuring justice in bearing the burdens of the financial crisis across all sectors. Overcoming the current crisis requires strong political will, a comprehensive action plan, and not just reactions to crises here and there, as well as cooperation among all Palestinian components. Continuing the financial situation as it is will lead to an economic collapse that cannot be contained, and the cost of any delay in the necessary measures at various levels will be very high, with damages that may not be recoverable in the future.