Beyond the Austerity Speech: Have Earth Solutions Ended or Has the Time of Dependency Ended?

- International Economic Advisor, and Member of the Board of Directors of International Digital Transformation

When an economic decision-maker announces the adoption of an "austerity" policy, it is not merely a financial measure to adjust the public budget; it expresses a real moment of constraint in maneuvering space. In the Palestinian context, the discourse on austerity transcends being a financial policy to implicitly acknowledging the blockage of economic decision-making tools on the ground. Hence, the fundamental question arises: Have earth solutions truly ended, or has the time of economic dependency come to an end?

This question is not a linguistic metaphor but an accurate description of a long-term structural blockage that has shackled the Palestinian economy for decades, transforming it from an economy seeking development to one preoccupied with managing survival under the burdens of overlapping financial, monetary, and sovereign crises.

Dissecting the Crisis: When Numbers Expose the Limits of the Model

The Palestinian austerity cannot be understood without returning to the language of numbers, not as static data, but as indicators of deep structural imbalances. The public debt in Palestine is now estimated at around 15 billion dollars, including direct obligations, arrears to the private sector, bank debts, and pension obligations. When compared to the Gross Domestic Product, which actually ranges between 13 and 14 billion dollars after years of contraction, we find that the public debt has exceeded 100% of the size of the national economy.

In any normal economy, this ratio is a red warning. However, in an economy lacking monetary sovereignty, without a national currency, and without control over its crossings or resources, it signifies entering a phase of complete depletion of financial capability.

More dangerous than the size of the debt is the cost of servicing it. Public debt servicing consumes between 250 and 300 million shekels monthly, which represents 60–75% of local revenues available in some months, before expenditures reach salaries, services, or investment. Thus, the financial discussion shifts from "how do we direct resources?" to "how do we keep liquidity alive?".

When added to this is a payroll bill nearing 900 million to 1 billion shekels monthly for nearly 150,000 employees, retirees, and semi-salaries, the public budget becomes governed by a zero-sum equation, where investment disappears from calculations, not as an option, but as an inevitable victim.

Banking System Dependency: Stifled Liquidity and the Correspondent Banks Trap

The depth of the crisis is also reflected in the situation of the Palestinian banking system, which is supposed to be a driver of growth, instead it has become a victim of monetary strangulation. The annual "extensions" of correspondent banking relations with the Israeli side are no longer a technical matter but have become a structural pressure tool threatening overall financial stability.

Refusing to accept surplus cash shekels is not a regular banking procedure but a choking policy that disrupts the function of liquidity itself. Local banks find themselves drowning in paper liquidity that cannot be converted externally or utilized internally, restricting their ability to provide productive lending, increasing the fragility of public finances, and deepening the crisis in the private sector.

Here, traditional "earth solutions" lose their effectiveness. Banks lack tools, the government lacks sovereignty, and the economy lacks growth engines.

Why Have Earth Solutions Stopped?

In sovereign countries, governments possess three essential tools: monetary policy, fiscal policy, and control over trade. In the Palestinian case, these tools are either disabled or forcibly constrained. As the economy relies over 70% on local consumption linked to public spending, any cut in salaries or expenditures automatically turns into a self-sustaining contraction.

Cutting salaries reduces purchasing power, weakens demand, strikes the private sector, leading to a decline in tax revenues, and the government returns to a deeper deficit point. It is a closed loop that traditional austerity measures do not break but instead exacerbate.

From Managing Deficits to Redesigning the Model

If earth solutions have been exhausted within the existing model, the alternative does not lie in seeking additional traditional tools but in redesigning the economic model itself. This requires a shift from the logic of "managing deficits" to the logic of "building capacity".

Firstly, productive austerity: that is, austerity that does not target investment nor suffocates the sectors capable of growth, but focuses on reducing waste, rearranging priorities, and linking all public spending to a measurable economic impact.

Secondly, digital sovereignty as a cumulative pathway: not as an immediate solution but as a gradual pathway to detach from the physical constraints of cash. A comprehensive national digital payment system could provide the economy with greater flexibility in managing liquidity and reduce the extortion associated with the circulation of paper cash, without claiming to abolish political constraints all at once.

Thirdly, transforming aid into risk mitigation tools, opening the door for investments from the diaspora in strategic sectors such as food security and renewable energy, and reducing the import bill, which is the largest source of financial leakage outside the economy.

Conclusion: The End of Dependency or the Beginning of Transformation?

The austerity discourse is not the end of the road but a final alarm bell. The real question is no longer: how much will we cut from spending? But rather: how do we rebuild production capacity in an economy whose debt exceeds its output?

Perhaps earth solutions associated with the dependency model have narrowed, but the spaces for innovation, digitization, and redefinition of economic tools are still open. The real challenge is not a lack of ideas but the will to transition from managing crises as a permanent destiny to breaking the model that produced them.

We do not just need austerity but to regain the ability to plan and create a horizon before austerity transforms from a rescue tool into a permanent way of life.