The Concern of the Palestinian Economy in the Coming Phase is to Prevent the Collapse of the Public Sector

Special to "SadaNews": An economic expert predicted that the current economic situation in the Palestinian territories will continue throughout the coming year 2026, with a continued trend towards further recession due to weak public demand, rising prices, reduced spending, and a lack of household income due to layoffs from Israel, as well as the incomplete payment of salaries to public sector employees.

The economic researcher at the (Mas) Institute, Maseef Maseef, stated that the Palestinian economy relies on clearance revenues - government spending, employment in Israel, and the private sector, indicating that the primary concern of the Palestinian economy in the upcoming phase will focus on preventing the collapse of the public sector like the collapse of the labor sector in Israel, as the collapse of the public sector leads to impacts on the social and health sectors and has other repercussions.

He added, "The economy will remain in a state of resistance to prevent collapse; there are no existing conditions or economic policy tools to solve these problems resulting from external factors to the Palestinian economic policies, as they are dilemmas due to occupation," noting that this means that no matter how hard the government strives, even if it becomes ideal and implements comprehensive fundamental reforms, the economic situation will not improve unless the clearance and employment crisis in Israel is resolved."

He pointed out that the only hope for the economy is the resilience of the Palestinian banking sector, which keeps it in a state of continuous anticipation and caution, in addition to the private sector's adherence to its efforts and its ongoing attempts to rise, noting that this will come at the expense of the middle class of society, part of which will decline to the lower class, but the economic situation remains somewhat intact and resistant.

Regarding his expectations for the year 2026, Maseef stated, "The economy remains in a state of crisis management, not in a state of growth, meaning that the economic function of the economic model based on demand, supply, and government spending goes off track and becomes constrained within the banking system and the private sector."

He emphasized that the current economic problem is political and can only be solved politically by stimulating the economic wheel represented by salaries and employment; unless the political situation is addressed to resolve this problem, there will be further economic deterioration that leads the Palestinian economy into greater recession.

The Minister of Finance, Dr. Estephan Salama, described in a meeting with journalists the current financial crisis faced by the National Authority as an existential crisis, and it is no longer just a deep crisis, a description that comes for the first time from an official in the Palestinian Authority, indicating that the public debt has risen to about (15) billion dollars, and Israel is withholding about (4) billion dollars of clearance funds, which constitute about 68% of the total public revenues of the Palestinian Authority, which has prevented it from fulfilling its commitments fully, whether in terms of services or in terms of paying employee dues, which significantly increases the risks of a possible collapse in the public sector if the existing conditions continue in the upcoming period.

It is worth mentioning that the number of employees in the public sector, according to the Ministry of Finance figures, reaches about 172,000 employees, both civilian and military, while about 292,000 individuals, including employees and social assistance recipients, benefit from the allocations and salaries paid by the Palestinian Authority, which amount to a monthly bill of about one billion and fifty million shekels.

Both the Palestinian Monetary Authority and the Palestinian Central Bureau of Statistics indicated in reports on economic forecasts for the year 2026 that the basic assumptions on which the baseline scenario for 2026 is based suggest that the current economic and political conditions will continue without significant changes. The scenario assumes that tight restrictions on the movement of individuals and goods and the crossings will remain in place, along with the continued limited economic activity in the Gaza Strip due to the extensive destruction that has affected the productive infrastructure, limiting activities to a narrow scope related to humanitarian aid and relief operations. The scenario also assumes that a large part of the Palestinian labor force remains unable to access the labor market inside Israel, negatively affecting income levels and local demand.

On the public finance front, the scenario assumes continued pressure on the Palestinian government's public budget, amid irregular transfers of clearance revenues and continued Israeli deductions, along with a decline in local revenues due to weak economic activity. The scenario also assumes that the levels of grants and foreign aid will remain at their current low levels, and in the external sector, performance is expected to continue to be affected by the Israeli restrictions and obstacles imposed on the movement of individuals and goods and the crossings.