Public Debt: Did the Palestinian Government Violate the New Law by Raising the Debt Ceiling?

Exclusive to SadaNews: President Mahmoud Abbas issued Law No. 20 for the year 2025, which entails substantial amendments to the Public Debt Law No. 24 for the year 2005, in a move aimed at regulating government borrowing policy and organizing the management of public debt in accordance with the current financial reality.

A Law Sought by the Government

This step, taken last year, came upon the recommendation of the Prime Ministry which sought to implement changes to the Public Debt Law, the most prominent of which is redefining public debt to be more comprehensive and accurate, encompassing all direct and indirect governmental obligations, both domestic and foreign, that the government is required to pay upon maturity.

The law also introduced new financial concepts, including the "annual borrowing ceiling" to determine the amount of debt designated for financing budget deficits or restructuring existing debt, and the "repayment plan" which organizes the mechanisms for accruing funds according to due dates, alongside replacing the term "Redemption Fund" with "Redemption Account" which represents a central axis in the new amendments.

Among the notable provisions in the decision is the establishment of a public debt ceiling that does not exceed 80% of GDP at current prices for the last year for which data is available. This ceiling is seen as a regulatory tool to avoid debt inflation and to protect financial stability in light of the economic pressures facing the Palestinian budget. So, has the government indeed complied with the provisions of the legal amendments it itself pushed for?

Staggering Debt Figures

Data from the Ministry of Finance and Planning, which "Sada News" reviewed, indicates that the size of the debts and obligations on the National Authority until the end of January (the first month of 2026) reached 47.7 billion shekels, approximately 15 billion dollars, while the GDP by the end of 2025 at current prices, according to data from the Central Bureau of Statistics, was about 17.1 billion dollars, meaning that the public debt constituted no less than 87% compared to GDP at current prices (without considering the volume of borrowing during February and March, which suggests that the percentage likely exceeded that). However, some government officials argue that the public debt has not reached this percentage, claiming that the debt owed to the pension fund and some other funds is a debt under settlement and not a recognized debt. (It is worth noting that these debts have accumulated over the years).

How is Debt Calculated in Comparison to GDP?

Dr. Ahmad Khaled, a professor of public law at Birzeit University, told "Sada News" that the amendments in the new law specified the size of the debt that should not exceed the threshold of 80% of GDP at current prices in the last year for which data is available, meaning that the year in which GDP is calculated is the same year in which the data is obtained or the year prior.

He adds: "For instance, if a loan is requested in 2026, the data for GDP at current prices for 2025 must be provided," noting that the government is not allowed, according to the law, to exceed a public debt of 80% of GDP at current prices each year.

In turn, economic expert Dr. Saeed Sabri states: "The question of the government's commitment to the Public Debt Law must be read today in light of the recent amendment to the law, which expanded the definition of public debt to include not only direct loans but also various unpaid governmental obligations, including employee dues, private sector dues, and the obligations of pension funds and other entities, with a legal debt ceiling set at 80% of GDP."

No Financial Maneuvering Room

Sabri adds: "If we rely solely on the traditional official figures, direct debt appears to be within relatively safe limits, as it hovers around only 15 to 16 billion shekels. However, this reading is no longer sufficient as it does not reflect the comprehensive definition stipulated in the law itself. If we take into account the full picture of governmental obligations, based on estimates circulating until the end of January 2026, we are talking about around 47.7 billion shekels, divided between 10.7 billion shekels as domestic borrowing, 4.2 billion shekels as external borrowing, 7.9 billion shekels owed to employees, 8.2 billion shekels owed to the private sector, and 16.7 billion shekels in debts to the pension fund and other entities."

When comparing this figure with an estimated GDP ranging between 17 and 20 billion dollars, and an exchange rate of about 3.15 shekels to the dollar, the GDP approximately equals 53 to 63 billion shekels. Therefore, the debt-to-GDP ratio ranges from 76% to 89%, with an average close to 80% to 85%.

Sabri notes that these figures clearly illustrate the situation as it is no longer possible to talk about a comfortable maneuvering margin, but rather about a highly sensitive financial condition. This calculation places us practically at the legal ceiling, raising a serious question about whether we are still within the legal ceiling if the debt is calculated according to the comprehensive definition adopted by the law.

The Danger Lies in the Nature of Debt and Its Uses

Economically, Dr. Sabri points out that the danger does not only lie in the rising number but in the nature of the debt and its uses. A large part of these obligations is linked to financing current expenditures rather than productive investments, which means the debt does not generate sufficient economic growth to compensate for it. Moreover, the accumulation of arrears places pressure on the private sector, constrains liquidity, and weakens the ability to invest and operate, while increasing reliance on domestic borrowing exposes the banking system to government financial risks.

The Reality is More Difficult and Sensitive

Sabri explains that the government may seem formally committed if we limit ourselves to the narrow official number, but according to the broader legal and economic reading, the reality is much more difficult and sensitive. The law broadened the definition of debt, but its application reveals that we are nearly at its limits, and the real warning bell is not just in the number alone but in the financial trajectory it leads to.

He adds: "The real challenge is not legal as much as it is structural, requiring a realignment of the trajectory of public finances, enhancing revenues, controlling expenditures, and directing borrowing towards productive investment instead of financing current deficits," noting that resorting to direct or indirect borrowing to cover current expenditures reflects a structural imbalance in public finances.

An Increase in Public Debt was Expected

For his part, Muayad Afana pointed out that the increase in public debt and financial obligations on the government was expected for several fundamental reasons, the most important being:

-The historical cumulative structural imbalance between revenue structures and expenditure structures over many years in the life of the Palestinian Authority, which created a financial gap, filled through debt and arrears.

-The financial crisis that the general budget has been suffering from, which began to surface distinctly since 2021, manifested in one of its results by paying a portion of the salaries of public sector employees, leading to the accumulation of those dues, along with accumulating private sector arrears.

-Failure to reach settlements in a timely manner and to resolve issues related to pension transfers and pensions, exacerbating debts.

-The public financial crisis following October 7, 2023, which plunged the general budget into a deep crisis, resulting in the accumulation of arrears and debts, and leading the government to resort to bank borrowing and banking facilities, alongside the accumulation of dues to employees, the private sector, and various funds.

-The shift towards financing through arrears, especially after Israel withheld all clearance revenues since May 2025, which raised debts and obligations.

Afana states that the approval of a new law for public debt is good for redefining public debt, and is an effort to restructure public debt management to encompass all governmental obligations towards various entities, as the amendment has redefined public debt in a more comprehensive and accurate manner to include direct and indirect governmental obligations, whether paid or unpaid, both domestic and foreign.

He adds: "It is a good approach towards governing public debt and obligations on the government, and although there may be differences in calculating the ratio of public debt to GDP due to the presence of obligations under settlement, the data indicates an upward trend in public debt due to the circumstances of the Palestinian economy and the reality of public finances, which necessitates rationalizing expenditures and enhancing revenues, and strictly controlling governmental obligations."