Israel Proposes Financial Relief Measures for Palestinian Authority, Alarming Economic Challenges Addressed

Israel Proposes Financial Relief Measures for Palestinian Authority, Alarming Economic Challenges Addressed

In response to the escalating economic crisis faced by the Palestinian Authority (PA), the Israeli government has stepped forward with an offer of financial support. This assistance includes a decrease in the gasoline tax from 3% to 1.5%, which is expected to provide the PA with a $20 million annual saving. The Israeli government has also proposed additional measures that could potentially inject around $70 million into the Palestinian economy this year. This move is in line with warnings from the United States about the imminent collapse of the PA if it does not receive more support. The overarching goal of these measures is to empower the PA to curb Palestinian resistance.

Historical Context of Financial Aid to Palestinians

The financial aid scenario for the Palestinian territories has its roots in the Oslo Accords of 1993, following which an international conference was held in Washington to ensure the financial solvency of the newly established Palestinian National Authority (PNA). The primary objectives of these efforts were to finance economic development in the occupied West Bank and Gaza Strip, contribute to Middle East stability, introduce liberalized markets, and work towards sustaining democratic institutions and human rights protection.

Between 1994 and 2020, the Palestinians received more than $40 billion in aid, according to data compiled by the Organization for Economic Cooperation and Development. A substantial portion of this assistance, 35.4%, was directed towards supporting the PA budget, while the remainder was allocated to various services and economic sectors in the Palestinian territories. Nearly 72 percent of the aid came from ten donors: the European Union, United States, Saudi Arabia, Germany, the United Arab Emirates, Norway, United Kingdom, the World Bank, Japan, and France.

Current Aid Dynamics and the Role of Major Donors

The European Union, driven by a desire to implement the two-state solution and address severe socio-economic needs in Palestinian society, has consistently directed aid towards various channels. These include the institutions of the PA, the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA), healthcare and social welfare organizations, and other humanitarian and educational groups. The EU’s annual aid to the Palestinians averages more than $600 million.

The United States, influenced by its relationship with Israel and its role in the Israel-Palestine peace process, is the second-largest source of aid for the Palestinians. The Biden Administration resumed funding in 2021, providing almost $250 million, following a drastic reduction during the Trump Administration. An additional aid package of $316 million was announced during President Joe Biden’s recent trip to Palestine.

Other notable aid contributors include Germany, Norway, the United Kingdom, France, and Japan, which together provided more than 20% of all aid between 1994 and 2020. The World Bank, as the international financial institution responsible for aiding economic development, has contributed $1.3 billion to the Palestinian economy during this period.

The Impact of Political Divisions and Economic Crisis

The division between the West Bank and the Gaza Strip, which began when Hamas took control of Gaza in 2007, has influenced both international and Arab financial support to Palestinians. The political split has caused a reduction in donations, impacting the economic stability of the region. The PA is currently facing significant cash flow problems and has been forced to cut salaries of its employees and reduce the transfer of cash to Gaza. The World Bank estimates the cost of rebuilding Gaza after the recent conflict at $485 million.

With foreign aid reaching its lowest point over the last few years, the PA is expected to experience a $1.36 billion deficit in 2021 out of a $6 billion budget. At the recent biannual conference of nations that contribute to the PA, the Palestinian leadership requested that financial aid be restored to at least $1 billion, not including emergency aid for the Gaza Strip. The Israeli government supports this request, and the Biden administration appears to be moving in that direction. However, these measures come with preconditions, including that the money should target specific projects and be under direct supervision to avoid corruption.