Reform Under Test: Should We Fix the Numbers or Fix the Path?

The call for "reform" in the Palestinian economic discourse is no longer a matter of disagreement in principle; rather, it has become a constant mantra invoked with every financial crisis, often presented as a prerequisite for the continuation of international support and the restoration of stability. However, the question that has become more pressing today is not about the necessity of reform, but about its actual nature: is it necessary to fix the numbers, or to reform the entire economic path?

In the donors' approach, reform typically focuses on a package of financial and technical measures, including controlling the deficit, improving tax collection, rationalizing current expenditures, and managing the wage bill. According to the average data from the last five years (2019–2024), clearance revenues constitute about 62–65% of the total public revenues, while salaries and wages account for about 48–52% of current expenditures. These indicators are often presented as the core of the problem, and thus are used to justify austerity policies that are described as reforms, without sufficiently addressing the nature of these revenues themselves and their stability.

The clearance funds, which are supposed to be a sovereign resource, have practically turned into a source of perpetual uncertainty. Repeated deductions and withholdings have made financial planning hostage to external decisions, plunging public finances into a state of quasi-permanent emergency. Despite this, the government is asked to implement reforms as if this resource were stable and dependable. Here, reform transcends the limits of financial efficiency to become a management of coercive gaps, passing on their consequences internally rather than addressing their roots.

The most prominent of these consequences appears in the wage bill. According to data from the Ministry of Finance, the number of beneficiaries of the wage and allowance item is approximately 292,000 beneficiaries, which includes not only active employees but also civilian and military personnel, retirees, and beneficiaries of various legal allowances. The number of civilian employees is about 120,000, and military personnel approximately 52,000. The monthly wage bill is estimated at about one billion shekels. These numbers do not merely reflect an abstract accounting burden but a wide social mass on which hundreds of thousands of citizens rely directly and indirectly.

The problem does not lie in the size of the bill per se but in how it is handled within the framework of reform discourse. The wages, which are supposed to be an element of social stability and a driver of domestic demand, have turned into a tool for absorbing financial shocks. Delays in salary payments or disbursing partial amounts are no longer exceptional measures; they have become part of an unannounced adjustment mechanism. Available estimates indicate that the arrears owed to employees in recent years have exceeded several billion shekels, effectively placing a substantial portion of the middle class in the role of silent financiers of the public deficit.

Economically, this approach bears a high cost. Purchasing power shrinks, domestic demand declines, and families become more vulnerable, while no tangible indicators of sustainable improvement in public finance surface. When reform is reduced to cutting an item or postponing a commitment, it may succeed in accounting terms in the short term, but it weakens the economy in the medium term and undermines social trust.

On the other hand, Palestinian banks have found themselves at the heart of this complicated cycle. On one hand, the treasury increasingly relies on short-term banking facilities to cover liquidity gaps. On the other hand, banks operate in a politically and economically high-risk environment. Published data shows that the banking sector's exposure to the public sector has significantly increased over the last decade, placing banks in a delicate equation between supporting financial stability and protecting their creditworthiness and the depositors' funds. Thus, banks have transitioned from financial intermediaries to crisis managers by default, in the absence of structural solutions that alleviate pressure on all parties involved.

In this context, the fundamental question arises regarding the nature of the required reform. When the wage bill is presented as a number that should be reduced, reform becomes an accounting exercise measured by tables and ratios. However, when wages are understood as an element of social stability in the absence of real sovereign tools, reform turns into a matter of options and policies, not just numbers. Reform that focuses on reducing wages without a parallel plan for generating alternative income, stimulating real production, or reducing dependency on clearance funds is a reform that improves indicators on paper but leaves the economy more vulnerable on the ground.

From this standpoint, it becomes clear that real reform cannot be based solely on austerity; instead, it requires genuine economic diversification that reduces reliance on uncertain revenue sources. In the short term, there is a need for a package of transitional measures, including a gradual and considered approach to managing the wage bill, enhancing the collection of tax arrears without harming economic activity, and reorganizing the financing relationship with the banking sector to alleviate pressure on all parties. Meanwhile, in the medium and long term, the essence of reform lies in redirecting the compass towards real productive sectors—such as modern agriculture, light industries, tourism, and the digital economy—as they are capable levers for creating jobs and reducing dependency on clearance funds. This also calls for redefining the relationship with international donors so that aid is directed towards sustainable productive investments rather than merely managing deficits. Palestine possesses the human and natural resources that qualify it for this, and what it needs today is a comprehensive strategic vision that places people at the heart of the reform process, not on its margins.

In conclusion, donors have the right to demand reform, and the government has the duty to strive for fiscal discipline. However, real reform cannot be reduced to fixing numbers alone. The reform needed today is a reform of the path: transitioning from managing emergencies to building an economy capable of reducing its reliance on clearance funds, salaries, and banks simultaneously. A reform that does not alleviate vulnerability or provide a clear economic outlook will remain an incomplete reform, no matter how disciplined it is financially.