Issuing Bonds: A Gap Between Government Aspirations and the Banking Sector’s Perspective

Exclusive to SadaNews: Ongoing debate has persisted since last month’s announcement of a decision by Law No. (20) for the year 2025 to amend the Public Debt Law No. (24) for the year 2005. There are supporters and opponents to the provisions of this law, but the idea of the government issuing bonds to manage public debt remains a point of real contention between government aspirations, which see it as an opportunity to manage its accumulated debt due to financial crises, and the banking sector’s perspective, which considers the "issuance of bonds" at this stage a governmental affair unrelated to them.

Government sources previously announced that the Ministry of Finance is studying the issuance of bonds directed towards the private sector and public sector employees after previous attempts with local banks to purchase them have failed. According to these sources, one of the proposals being discussed is for the Ministry of Finance to sell bonds to interested public employees in exchange for their financial dues from the government, which represent what is left of their monthly wages since November 2021.

Additionally, the Ministry will offer bonds to the private sector, specifically to companies interested in investing in governmental debt instruments, which would be the first of its kind in the Palestinian market.

Although the bond issuance is still just an idea being studied according to what economic expert Muaid Afana stated to "SadaNews", he confirms that a Jordanian company has been commissioned to study the matter from various aspects, amidst ambiguity regarding the possibility of executing this soon.

Economic expert Dr. Said Sabri explains to "SadaNews" what a government bond is, indicating that it is a debt instrument that the government resorts to for borrowing money from individuals and institutions in exchange for a specific interest rate and a clear repayment date.

He added: "Governments issue bonds to finance financial deficits, implement development projects, or diversify funding sources away from foreign loans. Bonds are also used to manage market liquidity and enhance the ability to meet obligations without the need for repeated direct borrowing."

Regarding whether the current Palestinian situation is suitable for issuing government bonds, Said says: "The Palestinian environment faces challenges that make the issuance of bonds a complicated process; the most prominent of which are the absence of monetary sovereignty, reliance on the shekel, and high political and financial risks."

He further adds: "Despite the presence of a strong banking system, the size of domestic debt and the chronic deficit reduce the attractiveness of bonds for investors. Therefore, the current conditions are not favorable for broad issuance, unless directed towards specific projects with external guarantees that reduce risks and ensure confidence."

Regarding his interpretation of the lack of the Palestinian Monetary Authority's desire to liquidate bonds in the event of their issuance, Said pointed out that the absence of the Monetary Authority's actions in liquidating bonds means they will not be considered liquid assets that banks can quickly convert into cash when needed.

He continued: "This leaves banks facing high risks without a (buyer of last resort) to support them, which reduces their willingness to subscribe. Thus, the relationship between the government and investors bears full risks without regulatory intervention to mitigate them, which practically limits the possibility of successfully issuing government bonds under current circumstances."

Economic expert Mohamed Salama expressed surprise in a meeting with "SadaNews" at how the public debt law decision was issued in isolation from the Monetary Authority, questioning "Why is it being sidelined or absolved? How can fiscal policy operate in isolation from monetary policy and without coordination with it?"

He added: "The Monetary Authority acts as the central bank, and its role is not limited to supervision but also includes being the entity that is supposed to issue bonds on behalf of the government, determine yields, and manage pricing auctions, besides conducting feasibility studies."

In a question directed by "SadaNews" to Deputy Governor of the Monetary Authority Mohammad Manasra regarding the role of the Monetary Authority in the event the government issues bonds, he confirmed that the role of the Monetary Authority was limited to providing some suggestions on the draft new public debt law after it was submitted to President Mahmoud Abbas. He noted that the Monetary Authority requested amendments to the public debt ratio to increase from 40% relative to the GDP to reach 80%, in addition to defining the nature of public debt to include all liabilities available on the National Authority, as well as the establishment of a debt servicing account.

As for the possibility that the Monetary Authority would participate in liquidating bonds if issued by the government, he said: "Issuing bonds is a matter that concerns the government, and we will not be part of the liquidation processes in the future."

According to banking data, the total facilities granted in Palestine at the end of the first half of this year reached about 11.6 billion dollars, of which about 3.3 billion dollars are facilities for the public sector, a figure that observers confirm is the maximum that can be granted to the government due to precautionary measures aimed at protecting depositors' funds.

Recent data from the Ministry of Finance indicated that the accumulated dues owed to public sector employees by the government reached 6.6 billion shekels by the end of September, while the total public debt and arrears exceeded 47 billion shekels, amid a severe financial crisis being endured by the National Authority under the holding of approximately 13 billion shekels of clearance funds by Israel, which constitutes 68% of total public revenues.