7 Billion Shekels at Stake: Employee Salaries Between the Hammer of Deductions and the Anvil of Bonds

The crisis of public employee salaries in Palestine is no longer just a figure in the general budget, but has turned into a blazing ball threatening the entire economic and social stability. With dues accumulating to 7 billion shekels, an unprecedented figure in the history of the Palestinian Authority, the economy today faces its last test of confidence, amid postponed solutions and a crisis that grows more complex each day.

These dues, which represent a silent debt on the government, are not merely deferred financial obligations but a direct reflection of a deep structural crisis. For over four years, approximately 146,000 public employees have received their full salaries only once, pushing the majority of them to the brink, burdening them with debts, and plunging the markets into a state of severe stagnation. Employees today are left with disbursements ranging between 60 and 70 percent of their salaries, with a minimum not exceeding 2,000 to 3,500 shekels monthly, an amount insufficient to meet basic needs amid escalating prices and rising living pressures.

The Deductions: A Severed Lifeline

The root cause of the crisis lies in Israel's continued withholding of deduction funds, which account for over two-thirds of Palestinian treasury revenues. This measure, which has deprived the Authority of its vital financial lifeline, has created a massive funding gap of 9.1 billion shekels (2.7 billion dollars), rendering the government unable to fulfill its basic obligations. In the last three months, Israel has refrained from transferring any funds at all, completely shutting the door on any quick solutions.

Additionally, the burdensome budget structure consumes more than half of public spending on salaries and social transfers. Out of a total budget of 19.4 billion shekels for 2024, salaries and wages alone have consumed 8.469 billion shekels, equivalent to 43.63 percent of the budget. This burdensome structure leaves very little room for any financial maneuvering or addressing emergency crises, making the government hostage to any fluctuations in revenues.

The picture becomes even bleaker when looking at the 2025 budget, adopted by the Palestinian president with a financial deficit nearing 7 billion shekels (1.9 billion dollars), a massive deficit that cannot be covered by available revenues. The government is increasingly relying on domestic borrowing to cover operating expenses, an option that exacerbates the problem rather than solves it, as it does not lead to real economic growth that alleviates pressures in the future.

Government Bonds: A Solution on Paper?

Amid this crisis, discussions about issuing government bonds have emerged as one of the proposed solutions. Indeed, the Palestinian president recently approved the new public debt law (No. 20 of 2025), which paves the way for using this financial tool. The proposed idea is for employees to receive bonds equivalent to their dues, with the government to repay them later with interest.

However, this solution, which seems attractive on paper, collides with a bitter reality. Bonds are not an immediate solution to the liquidity crisis, as employees will not be able to directly convert them into cash. This requires a complex mechanism allowing banks to purchase these bonds or discount them, which needs strong government guarantees and sufficient liquidity at banks, neither of which are available under current conditions.

Who Pays the Real Price?

The repercussions of this crisis do not only affect employees; they extend to hit the Palestinian economy at its core. The private sector is suffering from a sharp contraction in demand, banks are affected by reduced cash flows, and the government itself finds itself trapped in a vicious cycle of financial deficit. When employees lose their ability to consume, it directly impacts small and medium enterprises, leading to store closures, layoffs, and widening unemployment and poverty.

Continuous Slide Towards the Abyss

Economic indicators indicate a dangerous and ongoing slide into a deeper and more severe crisis. The ratio of public debt to GDP reached 86.3 percent by the end of 2024, with forecasts expecting it to rise to 94.6 percent in 2025 and 96.1 percent in 2026. These figures reflect a continuous slide towards an unmanageable debt crisis, especially in the absence of any real structural reform capable of controlling spending and improving revenue collections.

The real danger lies in the fact that the government may find itself trapped in a vicious cycle of increasing borrowing without a fundamental solution. The use of bonds without addressing the underlying causes of the crisis may open the door to further borrowing, leading to the accumulation of debt that cannot be repaid in the future, thus resulting in a complete financial bankruptcy of the state.
Emerging from this dark tunnel requires clear political will, and a courageous economic vision that goes beyond temporary solutions and palliatives, and rebuilds the Palestinian financial model on more solid and sustainable foundations. What is required today is not just the payment of salaries, but the restoration of confidence in the entire financial system and opening a real window of hope for an economy facing its toughest tests.