"Financial Breakthrough".. A Conditional Assessment Based on Several Internal and External Factors

Exclusive SadaNews: Is it possible for a breakthrough in the financial situation of the Palestinian Authority to occur by the end of this year? Statements by the Minister of Finance and Planning, Dr. Stepan Salama, have sparked a wave of discussions on social media and media platforms regarding the feasibility of achieving this given the difficult prevailing data.

To answer this question, the Minister of Finance spoke in a lengthy interview on Palestine TV, and his statement did not come in an absolute context; rather, the minister was reviewing the difficult financial situation faced by the Palestinian Authority. The host then asked whether Israel is using the clearance funds as an electoral card. The answer was "yes". In the context of explaining the upcoming period, Salama presented some optimistic indicators (such as the donors' conference scheduled for next month) without definitively establishing its tangible results, saying, "There are positive indicators that may lead to a financial breakthrough by the end of this year".

So what indicators did the minister rely on to build his relatively optimistic outlook, despite his statements coinciding with the Knesset's approval of a law that expands mechanisms for the piracy of clearance funds in exchange for payments and compensations related to armed operation files?

Economic expert Dr. Said Sabri states: "In my opinion, when reading the Minister of Finance's statement about the possibility of a financial breakthrough by the end of the year, it must be treated as a conditional estimate based on a number of internal and external factors, not a promise that the crisis will end within a short period". He pointed out that the financial situation in Palestine is extremely complex, and any potential improvement in liquidity will not be immediate, but will require time to be reflected in the government’s ability to spend, especially since financial commitments, even if announced at donors' conferences, do not usually convert into direct cash flows into the treasury.

He adds: "This challenge becomes more complex against the backdrop of official estimates indicating economic losses approaching one billion dollars monthly, and the continued accumulation of financial obligations on the public treasury, which makes any external financial flows, no matter how significant, closer to tools for alleviating the crisis than tools sufficient to end it".

Externally, Dr. Sabri believes that the most influential factor is the clearance funds, as they constitute the largest part of Palestinian public revenues. The continued Israeli deductions limit the government's ability to build stable financial forecasts, and any additional Israeli measures or legislation may deepen the crisis. Conversely, international efforts, grants, and soft loans may contribute to improving liquidity, but that remains contingent on transforming commitments into actual funds in the second half of the year and the commitment of donors to transfer them on time.

Internally, Sabri sees that the government’s ability to benefit from any external support will still be linked to the size of accumulated obligations, the level of public debt, and debts owed to banks and the private sector, in addition to the weakness of economic activity and the decline in local revenues. These factors pressure public finances and limit the government’s ability to quickly return to full regularity in paying salaries and operating expenses.

Sabri confirmed that relying on a potential political change in Israel, whether through elections or a change in government, does not seem to be a decisive factor in the short term. The clearance file has become linked to procedures, laws, and institutional positions, not just the orientations of the current government. Consequently, any political shift will take a long time before it is reflected in existing financial policies.

Sabri states that the most likely scenario is a limited and gradual improvement in liquidity and expenditure ratios by the end of the year or the beginning of the next year, if donors adhere to transferring their commitments on the scheduled dates and if the deductions from the clearance funds do not expand. However, this improvement, if achieved, will remain closer to managing the crisis more efficiently than to exiting it. The current indicators may support a relative improvement in liquidity and expenditure ratios by the end of the year, but they do not yet provide sufficient evidence of the beginning of sustainable financial recovery.

For its part, the Social and Economic Policy Observatory stated in a press statement that there are currently no realistic indicators that warrant optimism about the possibility of a breakthrough in the Palestinian financial crisis by the end of this year.

The observatory pointed out that the past months have seen many statements and expectations from experts, officials, and politicians regarding the near end of the financial crisis or an improvement in economic conditions; however, these expectations have not materialized in reality and were not based on sufficient data to justify them.

It indicated that the repeated talk about an anticipated breakthrough, including relying on the possibility of a change in the Israeli government, is not based on practical indicators confirming the possibility of recovering the withheld clearance funds or ending the existing financial crisis.

The observatory highlighted that the Israeli Knesset recently approved a law that expands the mechanisms for deducting funds from the Palestinian Authority, allowing for the deduction of additional amounts from clearance funds in exchange for payments and compensations linked to various files, in addition to those related to prisoners' and martyrs' allowances.

It clarified that the new law allows for deductions that include compensations for victims of operations, national insurance allowances for the injured and families of the deceased, in addition to compensatory damages for damages to properties, with the Israeli Minister of Finance required to submit an annual report specifying the size of these payments, to be decided by the Israeli cabinet's security and political affairs committee (the security cabinet) on the amounts to be deducted from clearance funds.

The Minister of Finance indicated in press statements that the Palestinian Authority needs about 1.5 billion shekels monthly to fulfill its basic obligations, whether for salaries or monthly expenses, while currently, only 10% of the required revenue is available, due to Israel's withholding of the clearance funds.

He noted that the government needs around 650 million shekels monthly to pay 50% of salaries, with a minimum of 2000 shekels. The monthly payroll and similar full salaries reach about one billion and 50 million shekels.

According to statements from the Minister of Finance, the total amount of withheld and deducted clearance funds is approximately 5.7 billion dollars, while the amount of public debt and accumulated obligations on the Authority is about 15.6 billion dollars.