Two main reasons behind the repeated crises of the Palestinian Authority during the past two decades

The Palestinian Authority is facing one of its worst financial crises since its establishment under the Oslo Accords in 1994, with which it was unable to meet the wage bill for its employees in the West Bank and Gaza Strip.

Palestinian Prime Minister Muhammad Shtayyeh attributed the cause of this crisis to Israel in the government session - last week, and said, "Israel continues to deduct from our owed money, which puts us in a difficult financial situation."

Shtayyeh's government was forced to reduce the salaries of its estimated 140,000 employees in the West Bank and Gaza by 25% compared to last November.

Experts and specialists say to Al Jazeera Net that the repeated crises of power during the past two decades are due to two main reasons, namely the restrictions of the Paris Economic Agreement, and the poor financial and economic performance of the authority.

Paris Economic Agreement

The Paris Agreement is the colloquial name for the economic protocol to the Oslo Accords, signed by the Palestinian Authority and Israel in Paris on April 29, 1994.

The agreement consists of 82 articles with the aim of regulating economic relations through the “Joint Economic Committee” between the two parties during the 5 years of the transitional phase of the Oslo Agreement, which actually ended in 1999. However, this committee met only a few times, before it was completely frozen by Israel after the outbreak of Al-Aqsa Intifada in 2000.

Previous demands for the authority to make amendments to some provisions of the agreement - more than a quarter-century since its signing - were met with an Israeli rejection.

A study of the General Union of Palestinian Economists entitled "The Palestinian economy victimized by the Paris Economic Agreement" described this agreement as a "trap" entered by the Palestine Liberation Organization due to the Palestinian negotiator's lack of experience in economic, financial and technical issues, and it has not been able to escape from this trap so far.

On the other hand, Israel owned the final decision regarding everything related to Palestinian economic development, which was restricted by the agreement with Israeli political, security and professional approvals.

According to the study, the joint economic committee between the two parties, which is composed of an equal number of members, and any other sub-committees that can be formed have turned into a name only and entered the “refrigerator”, and it no longer has any authority or influence on the overall economic, commercial and financial relations between the two sides.

The Paris Agreement besieges the Palestinian economy and makes it surrounded by a tight Israeli circle (Anatolia)

Restrictions and dependency on the Israeli economy

The journalist writer specialized in economic affairs, Hamed Gad, told Al Jazeera Net that the agreement besieges the Palestinian economy and makes it surrounded by "a tight Israeli circle", and prevents its launch towards real development, due to the restrictions of the agreement that linked it to the Israeli economy and made it extremely difficult to break away from it.

Under this agreement, Israel controls the smallest details of Palestinian economic life through its absolute control over ports and crossings, linking economic approvals to the security dimension, and within the unified customs envelope without regard to the level of growth and development in the emerging Palestinian economy compared to the Israeli one, according to Jad.

He added that the agreement placed strict restrictions on the movement of exports and imports by stipulating that the Palestinian economy does not deal with countries that do not have political or commercial relations with Israel or are at war with it.

Gad added that the Palestinian merchant found himself bound by requirements in terms of quantities and specifications, and the complexities of Israeli security approvals, so he was forced to deal directly with the Israeli economy to skip the complex requirements of external dealing.

Jad believes that the Palestinian economy will not witness real growth and progress in the presence of this agreement, and the absence of an environment that attracts investment, such as security and stability, and the Palestinian side owning its commercial outlets with the outside world.

What is clearing?

In addition to the impact of the restrictions of the agreement on the renaissance and growth of the economy, it is in an important aspect related to the clearing (tax revenues) that it was the cause of the authority’s repeated financial crises, as well as Israel’s use of the customs revenue funds it collects on behalf of the authority as a “pressure card and political blackmail”, and it intends to seize them. And not to transfer it to the treasury of the Authority, even though it collects it in return for 3% as collection and management fees.

The clearing funds, estimated at about $188 million per month, include taxes imposed by Israel on goods imported into the Palestinian Authority’s lands from abroad, 75% of the income tax it collects from Palestinian workers working inside Israel, and all tax collected from Palestinian workers in settlements, in addition to Other transaction fees.

Israel legalized the seizure of these funds in March 2018, when the Knesset approved a bill withholding sums equivalent to the value of the financial allowances paid by the Authority to the families of martyrs and prisoners.

In May of that year, the authority responded by stopping security coordination and refusing to receive the incomplete clearance. However, it did not last long for it to decide in November 2019 to resume security coordination, and said - at the time - that its decision came after Israel transferred the full financial dues, estimated at 3 billion. and 768 million shekels (one dollar is equivalent to 3.10 shekels).

However, Shtayyeh's recent statement confirms that Israel has not committed to transferring these funds, and is still deducting them, which has put the Authority in a new and recurring financial crisis.

Specialists say that the authority cannot financially withstand without the clearing funds, which constituted about 68.4% of the authority’s total revenues for the fiscal year 2017, according to data from the Palestinian Ministry of Finance.

Clearance funds include taxes imposed by Israel on goods imported to the Palestinian Authority from abroad (Al-Jazeera)

Causes and solutions

In turn, Professor of Economics, Dr. Moeen Rajab, believes that the bulk of the Palestinian tragedies and financial crises are due to the Paris Agreement, but at the same time he holds the authority - with its poor performance and poor performance - partly responsible.

Rajab told Al-Jazeera Net, "We are not with this agreement, but it exists, and the authority has not improved dealing with it to the extent that it benefits the national economy."

He agrees with advocates of the need to amend the agreement in line with developments 27 years after its signing. "It is not enough for the authority to request the amendment, but rather it must insist on the request and press in international forums to compel Israel to do so."

He added, "It is natural for Israel to refuse to make amendments, as the agreement guaranteed it a lot in exchange for the few crumbs it gives the authority."

He wondered, "Is it reasonable, after all these years, for Israel to continue imposing its conditions and restrictions that guarantee it the supply of about 65% of the Palestinian market's needs, while the percentage of Palestinian trade with Arab countries does not exceed 4%?"