Liquidity crunch choking Palestinian economy — World Bank

OCCUPIED JERUSALEM — Despite last month's receipt from Israel of funds it owed, the Palestinian Authority (PA) still faces a financing gap that could top $1.8 billion, the World Bank said on Thursday.

Palestinian President Mahmud Abbas's PA has been in deep financial crisis since February when Israel froze transfers of VAT and customs duties it collects on the Palestinians' behalf.

His administration had to impose austerity measures, cutting almost half the salaries of its employees.

The cuts hit hard on the Palestinian territories, already suffering unemployment of around 26 per cent in the second quarter of 2019, the bank said in its latest report on the Palestinian economy.

Israel collects around $190 million a month in customs duties levied on goods destined for Palestinian markets that transit through its ports, and it is supposed to transfer the money to the PA.

In February, it decided to deduct around $10 million a month from the revenues — the sum the PA paid inmates in Israeli jails or their families — prompting the Palestinians to refuse to take any funds at all.

Last month, Israel's debt was reduced with the retroactive payment of more than $560 million (506 million euros) in fuel taxes.

But that part-payment of arrears has not fixed the liquidity crisis, the report said.

"The Palestinian Authority faces a financing gap that could exceed $1.8 billion for 2019, driven by declining aid flows and the unresolved transfer of taxes and import duties collect by Israel on behalf of the PA," it wrote.

"The outlook for the Palestinian territories is worrisome," Kanthan Shankar, World Bank country director for the West Bank and Gaza, said in a statement accompanying the report.

"The severe liquidity squeeze has started to affect the PA's ability to fulfill its responsibilities of paying its civil servants and providing public services."

The bank's report will be presented to the international donor group for Palestinians, known as the Ad Hoc Liaison Committee, at its meeting next week in New York.

"If the clearance revenue stand-off is not resolved, the PA would embark on the year 2020 after largely exhausting its domestic sources of financing, including borrowing from domestic banks, which will put it in a much worse position than in 2019," it said.