The New Public Debt Law.. Will the Authority Succeed in Curbing the Rise of Debt?

SadaNews Exclusive: Economic expert Moayad Affana confirmed that President Mahmoud Abbas's issuance of Legislative Decree No. (20) of 2025, which includes substantial amendments to the Public Debt Law No. (24) of 2005, aims to enable the Palestinian National Authority to restructure its debts and define a new and comprehensive concept of "public debt".

Affana explained in a special statement to "SadaNews" that the new law carries many positive features, the most significant of which is redefining public debt to include all overdue payments owed by the government, including employee dues and arrears to the private sector, rather than being limited to borrowing from the banking sector only as is currently practiced.

He pointed out that the Palestinian government has concluded an agreement with a specialized Jordanian company to develop mechanisms that would allow it to issue bonds to reschedule its debts owed to employees and the private sector. The company is currently studying the interest associated with these bonds and their maturity period, with a suggestion that the term could be one year, but the more logical approach is to set the maturity at five years.

Affana clarified that granting bonds to employees will be optional, not mandatory, offering them the choice to receive bonds with terms ranging from one to five years at an interest rate of 7%, for instance, or to wait until sufficient liquidity is available for repayment according to current financial conditions, without the government being obligated to immediate repayment.

He added that these bonds open new horizons for employees and companies, as they can sell them to banks; however, the banks will not purchase them unless the "Repayment Account" is funded with money.

In this context, Affana revealed the presence of an agreement with the European Union to finance the "Repayment Account", though the Europeans stipulated maintaining the independence of this account, subjecting it to high oversight and transparency, and not allowing the National Authority to control it, similar to what happened previously with the pension fund.

He also indicated that the Ministry of Finance recently established a new department called the "Public Debt Control Department", which will address various issues related to public debt and its structuring.

Although the new law will not directly and swiftly dismantle the current financial crisis, it, according to Affana, opens professional horizons for addressing the crisis in phases, or at least alleviating its accumulated burdens.

He explained that the amended law allows for a public debt ceiling of up to 80% of the gross domestic product, compared to the previous law, which set the ceiling at 40%. Affana estimated that the current public debt has reached about 86% of the GDP, possibly exceeding 100% when accounting for some debts that had not been recorded until recently.

He added that the new law specifies the "annual borrowing ceiling" which regulates the size of debts allocated to finance the budget deficit or restructure existing debt, and it stipulates "a repayment plan" that organizes the mechanism for crediting funds according to maturity dates. One of the notable amendments is also the replacement of the term "Repayment Fund" with "Repayment Account", which represents a central pivot in the new law.

Regarding the financing of the "Repayment Account", Affana clarified that it is supposed to match the size of the public debt; however, this is practically unfeasible due to the high value of the debt, but it can be funded according to the value of the bonds due for repayment while continuously monitoring the process and making periodic decisions regarding funding the account.

He noted that if the maturity of the bonds for employees or the private sector arrives and the government is unable to repay, it can request a postponement of repayment for a certain interest, as is practiced in several countries.

"SadaNews" was unable to obtain a comment from the Ministry of Finance or any government source regarding this information, but it will publish as soon as an official response is available.

It is worth noting that the Palestinian National Authority has been suffering from a severe financial crisis for several years, preventing it from fully meeting its obligations towards employees and private sector companies, a crisis that worsened after the events of October 7, 2023, when the occupation authorities detained the majority of clearance funds, which constitute about 68% of the total revenues of the Authority, before completely halting transfers six months ago. It is noted that public sector employees have not received their full salaries since November 2021.

According to data from the Ministry of Finance, the total public debt until the end of May 2025 reached approximately 45.5 billion shekels, distributed among several parties, including 15.4 billion shekels owed to banks (domestically and abroad), 6.6 billion shekels to the private sector, 5.2 billion shekels for wages owed to employees, in addition to other debts amounting to 18.3 billion shekels.

Observers estimate that the public debt has recently increased to exceed 47 billion shekels. Recent data from the ministry indicated that the accumulated dues for public sector employees totaled about 6.6 billion shekels by the end of September.

Read also: Amendment of the Public Debt Law in Palestine and the establishment of the "Repayment Account" for government bonds