Will the Employee be the Weakest Link in the New Public Debt Law?

SadaNews Exclusive: The decision by President Mahmoud Abbas to issue Law No. (20) of 2025, which includes substantial amendments to the Public Debt Law No. (24) of 2005, has sparked widespread controversy in community circles, particularly among experts and specialists. Some see these amendments as keeping pace with modern financial developments and redefining public debt to encompass all obligations arising from the Ministry of Finance, allowing the authority to restructure its debts in preparation for organizing their repayment. Conversely, others have expressed their rejection of these amendments, considering that they may open the door for the government to resort to borrowing as a means to address debts, thereby exacerbating the crisis rather than resolving it.

Debts First, Then Salaries and Services?

Economic expert Dr. Said Sabri stated in an interview with "SadaNews" that this law cannot be interpreted solely through numbers, but rather through its impact on people's lives. While the government seeks fiscal discipline, the citizen - especially the employee - feels like the weakest link in a merciless equation.

He adds, "The new law abolished the old concept of the (Loyalty Fund) that remained ink on paper, replacing it with a (Loyalty Account) within the Ministry of Finance, where funds are periodically transferred to pay off the principal debt and its interests, and their use for any other purpose is prohibited," indicating that this provision revolutionizes the management of public money as it prioritizes the interests of creditors and transforms debt repayment into a legal obligation that must be fulfilled even before paying salaries.

From an economic standpoint, Said sees that this step enhances the confidence of banks and investors, but it does tighten the noose on operational expenses, and it may practically mean that public sector employees will have to wait for their salaries while interest payments are made on time.

Said confirmed that the law also set a ceiling for public debt at 80% of GDP, a ceiling that seems "disciplined" on paper but, in light of weak growth and irregular transfers, may limit the government's ability to cope with crises or pay overdue debts.

Legally, Said emphasizes that the law has drawn a new hierarchy for governmental obligations: debts first, followed by salaries and services. This means that the state has become a "disciplined debtor" before the banks, but it is not necessarily "generous" to its employees. In fact, including pension funds within the concept of public debt means that retirees' dues are now subject to debt management policies and repayment schedules.

He pointed out that this law aims to remedy financial imbalances but shifts the burden of discipline onto citizens. An employee who bears personal debts due to salary deductions will find himself more exposed to banks and less protected by the law.

Said questions: Can financial discipline be achieved without social justice?

He answers: "True reform is not just about restricting spending but about rearranging priorities between creditors and citizens, between financial instruments and human beings. Indebtedness is not just rigid numbers but faces waiting for a salary, families dreaming of a day when loyalty to debt does not overshadow loyalty to people." 

Long-term Financial Risks

For its part, the Social and Economic Policies Observatory (the Observatory) considers the law decree a crippling blow to the fragile Palestinian economy.

The Observatory stated in a press release received by "SadaNews" that this "law decree" is the most dangerous economic legislation since the establishment of the Palestinian Authority, due to the long-term financial risks it entails, which will chain the Palestinian people with debts beyond their capacity to service.

The Observatory said, "Under this decree, the limits allowed for public debt have increased by 100%, from 40% to 80% of GDP, and the definition of public debt has been expanded to include direct and indirect government obligations, both internal and external. Thus, the Palestinian people are now required to service public debt exceeding 50 billion shekels."

The Observatory noted that doubling public debt without any solid economic foundations poses a threat to the savings and funds of depositors in banks, especially amid the move towards issuing treasury bonds worth billions more. It stated that if the bank profits from its dealings with the additional bonds and loans, the returns would go to shareholders, but if losses occur, it is the depositors who pay the price.

The Observatory added, "This decision does not stem from the Authority's ability to meet its financial obligations, but rather to defer the burden of these debts to future years and generations." As for the so-called (Loyalty Account), there are fundamental questions regarding its funding sources at a time when the Authority struggles to even pay transport fees for doctors and teachers.

Positive Advantages
However, economic expert Moayed Afana confirmed to "SadaNews" that the new law carries several positive features, the most prominent of which is redefining public debt to include all overdue payments owed by the government, including employee dues and private sector arrears, rather than restricting public debt solely to borrowing from the banking sector as is currently the case.

Afana confirmed to "SadaNews" that the government has agreed with a specialized Jordanian company to develop mechanisms that enable it to issue bonds to schedule the repayment of debts to employees and the private sector. 

Afana indicated that the new law identifies the "annual borrowing ceiling" to determine the size of debts allocated to finance the budget deficit or restructure the existing debt, and the "repayment plan" that organizes the mechanism for allocating funds according to due dates, in addition to replacing the term "Loyalty Fund" with "Loyalty Account" which represents a central axis in the new amendments.

Meanwhile, a well-informed government source confirmed to "SadaNews" that the law decree is a step aimed at regulating government borrowing policy and managing public debt in line with the current financial reality.

The source clarified that the preparation of the new law took more than two years of technical work and consultations with concerned authorities, including the Monetary Authority, the Capital Market Authority, and several financial institutions, to reach a consensual formulation aimed at addressing the debts owed by the government and aligning them with international best practices in debt management.

The source added that the new amendments represent a qualitative shift compared to the original law in effect since 2005, as well as the temporary Jordanian Law No. (96) of 1966. The amendments include: specifying precise mechanisms for managing repayment accounts, setting clear ceilings for debts, and introducing modern financial concepts that enhance the confidence of investors and regulatory authorities, ensuring the sustainability of public finances.

He emphasized that the amendments aim to address the debts owed by the government, update the legislative framework for public debt, and set precise controls for borrowing and repayment policies.

According to the source, new financial concepts have been developed, the most notable being the "annual borrowing ceiling" to determine the size of debts allocated to finance the budget deficit or restructure the existing debt, and the "repayment plan" that organizes the mechanism for allocating funds according to due dates, as well as replacing the term "Loyalty Fund" with "Loyalty Account," which represents a central piece in the new amendments.

The establishment of the "Loyalty Account" in the Ministry of Finance is one of the most important outcomes of the amendment, as it will be allocated to aggregate the funds necessary to meet obligations arising from government bonds. 

The source noted that the law also seeks to regulate borrowing limits to ensure that the balance of existing public debt does not exceed 80% of GDP at current prices, which constitutes a guarantee to limit indebtedness growth and enhance financial stability. 

Debt Repayment via Bonds
Government sources had previously announced that the Ministry of Finance is studying the issuance of bonds directed at the private sector and public sector employees after previous attempts with banks operating in the local market to purchase them had failed. According to these sources, one of the proposals being discussed is for the Ministry of Finance to sell bonds to public employees interested in this move, in exchange for their financial dues from the government, which represent the remainder of their monthly salaries since October 2021. The ministry will also offer the bonds to the private sector, specifically to companies wishing to invest in government debt instruments, which will be the first of its kind in the Palestinian market.

On his part, businessman Samir Halilah stated, "Raising debt is linked to the ability to repay it or its interests, and our issue is political rather than financial. It is unclear when Israel will resume transferring clearance revenues to us." He pointed out that if the law targets banks, they should consider their interests and risks; if it is meant for employees, they are vulnerable groups and require deep and comprehensive discussions to avoid drowning in debt.

Are Banks Encouraged to Buy Bonds?
Economic expert Mohamed Salama expressed surprise at how this law decree was issued separately from the Monetary Authority, questioning, "Why is it being sidelined or exonerated? How can fiscal policy operate independently of monetary policy without coordination with it?" 

He added, "The Monetary Authority acts as a central bank, and its role is not limited to oversight, but also to the entity that is supposed to issue bonds on behalf of the government. It determines the interest rate and manages the price auction and conducts feasibility studies.

He illustrates that the idea of borrowing should be based on the current generation's right to borrow in order to build investments that serve the present generation and help the next generation pay what will be due as a result of developmental projects or infrastructure or capital formation, and not to borrow to spend on the luxury of one generation at the expense of the next generation.

As of the preparation of this report, no comment had been released from the Monetary Authority regarding this law or its role in it. 

Salama continues: "I support borrowing for development, not for funding this generation's budget deficit. This generation should sacrifice its luxury to reshape its financial system in a way that does not consume the rights of future generations."

Journalist specialized in economic affairs Mohamed Abdullah stated, "The Monetary Authority was the first entity contacted by the Ministry of Finance, and its advice, along with that of bank managers to the ministry regarding the bond issuance proposal, prompted the latter to pursue this step away from the banking system."

Amid the ongoing debate surrounding the law's provisions and the possibility of settling employees' dues through the issuance of bonds, "SadaNews" learned from banking sources that most banks do not consider themselves "encouraged" to purchase government bonds in the absence of genuine repayment guarantees.

Bonds... Risks and Cautions
A banking source told "SadaNews": Turning the financial dues of public employees into debt bonds carries benefits, risks, and cautions. This is a sensitive financial procedure that yields apparent benefits but also hidden risks requiring a deep understanding before employees consent to it.

He explains that the issuance of bonds is an acknowledgment by the government that it owes an employee a certain amount, but it is not disbursing that amount in cash now. Instead, it is providing a government bond (or "debt instrument") wherein it pledges to pay a certain amount to the employee after five years at a specified interest rate, for example, 4%. This means that the debt shifts from an immediate cash obligation to a delayed financial instrument.

Regarding what benefits this entails, the banker clarifies that the bond serves as an official acknowledgment of the government's debt and may be tradable or sellable. Some bonds grant annual interest, increasing the total amount over time. The government can manage its finances without denying the debt and can pay later when the budget improves.
The employee may use the bond as a banking guarantee since he can mortgage it or sell it in the market (if permitted).

However, regarding risks and cautions about this topic, the banker highlights that the most significant risks involve losing the actual value of money, as delaying payment for several years diminishes the actual value due to inflation. 

There is also repayment risk. If the state's conditions worsen or the government changes, repayments may be delayed or the values of bonds could be reduced by economic or political decisions. Furthermore, the bond may not be easily tradable, and if the employee sells it in the market, they will likely sell it at a price lower than its original value (at a significant discount).

Other negatives include losing the right to immediate claims, as once the bond is accepted, the employee is seen as forfeiting their right to instant payment, and cannot sue the government for the money. Additionally, the government may draft the bond in a manner that makes it not legally obligated to repay by a certain time or "connected to budget capabilities," which is a significant risk.

As for who truly benefits, according to the banker, the government benefits financially immediately because it delays cash outflows, relieving pressure on the treasury. The employee only benefits if the bond is guaranteed one hundred percent and is tradable.

He adds, "Transforming employee dues into bonds may seem a temporary financial solution beneficial to the government, but from a realistic and economic standpoint, it poses a high risk to the rights and dues of public employees."
 
Shocking Figures 
According to data issued by the Ministry of Finance, the total public debt reached approximately 45.5 billion shekels by the end of May 2025, distributed among several entities, including banks (locally and overseas) at 15.4 billion shekels, the private sector at 6.6 billion shekels, employee salaries at 5.2 billion shekels, and other debts amounting to 18.3 billion shekels. However, observers believe that the public debt has recently risen to exceed (47) billion shekels. 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.