The current director of the Palestine Investment Fund, Muhammad Mustafa (Palestinian press)

The new Palestinian Prime Minister, Muhammad Mustafa, takes office to find thorny economic issues that he inherits from his predecessor, the economist and current Prime Minister, Muhammad Shtayyeh, the most prominent of which is the reconstruction of the Gaza Strip after the Israeli war, which has not yet ended.

Last week, a presidential decision was issued appointing Mustafa, head of the Palestine Investment Fund, to form a new government headed by him, to succeed the resigned government, which is currently in progress, awaiting the announcement of the new government.

In Ramallah, everyone is talking about the files that await the new prime minister, the most prominent of which are economic, starting with the reconstruction of Gaza, and not ending with implementing economic and financial reforms in the public sector.

Reconstruction of Gaza

While the Israeli war machine continues its aggression against the Gaza Strip for the sixth month in a row, about 60% of the residential facilities in the Strip are no longer fit for human use.

Likewise, the Gaza Strip's economy, whose gross domestic product is valued at nearly $5 billion, has been subjected to a sharp deterioration due to the ongoing war, which has caused more than 31,000 martyrs, 80,000 wounded, and more than two million displaced people.

Prime Minister-designate Muhammad Mustafa participated in the Davos Forum last January, and during his session, he estimated the cost of rebuilding Gaza’s residential facilities at at least $15 billion.

Last week, Egyptian President Abdel Fattah El-Sisi said that the cost of reconstruction (residential, commercial, infrastructure), based on a study prepared by Egyptian institutions, would exceed $90 billion.

Today, the Palestinian government does not have a single billion dollars of the expected reconstruction amount, amid an escalating financial crisis that the Palestinian Authority has been suffering since 2017.

In addition to reconstruction, the next government will be set to restore the momentum of the West Bank's economy, which has a domestic product of $16 billion.

The Palestinian economy declined sharply in the last quarter of 2023, by more than 20%, amid a decline in financial revenues collected locally.

The majority of the buildings in the Gaza Strip were destroyed by the occupation, and Yasser Arafat's house was not an exception (Al Jazeera)

Wage bill

Since November 2021, public employees in Palestine (147,000 civilian and military employees) have been receiving underpaid wages, due to the government’s inability to generate financial revenues sufficient to cover the entire wage bill.

The wage bill for public employees amounts to about $160 million per month, to which is added another $120 million per month, representing the wages of retirees and semi-salaries (allocations for prisoners, families of martyrs and wounded, and other allocations).

By adding the two figures, the government is required to pay $280 million monthly, without taking into account operational expenses, payment of outstanding loan installments and interest, and dues to the private sector, bringing the total monthly spending to $400 million.

On the other hand, the total Palestinian income, including clearance funds, amounts to approximately $380 million, which has prompted the government since November 2021 to disburse 80% of the monthly salary.

To solve the wage bill crisis, the government will have harsh solutions, including opening the door to compulsory or voluntary early retirement, or searching for unconventional revenues.

Clearing crisis

Today, for the sixth month in a row, the Palestinian government is suffering from a clearance crisis with Israel, which began since the outbreak of the war on the Gaza Strip, and the decision of Israeli Finance Minister Bezalel Smotrich to deduct Gaza’s share of the clearance funds.

Gaza's share of these funds amounts to approximately $75 million out of a total clearing of $220 million per month.

Israel collects taxes on behalf of the Palestinian Authority against Palestinian imports on imported goods, calling it “clearance funds,” with a monthly average of $220 million.

The Palestinian Authority relies on clearing funds to pay the salaries of its employees, and without them it will not be able to fulfill its obligations towards the wage bill and towards the expenses of government institutions.

In addition to the deducted amount allocated to Gaza, Israel deducts what it says are monthly debts owed by the Palestinians to water, electricity and hospital companies, fines, and loan installments obtained by the Palestinian government from Israel, and in exchange for the allocations that the Palestinian government provides to the wounded and prisoners, for a total of $60 million.

Thus, the total deduction from the clearing funds is at least approximately $135 million per month.

Donor trust

Since 2017, foreign grants directed to the Palestinian side, with an annual average of $1.1 billion, began to decline sharply, led by the United States and Arab countries.

Today, the average external support to Palestine is approximately $350 million annually, with 80% of the value of this support coming from the European Union, and the remaining percentage from the World Bank and individual donors.

Donors were accusing the Palestinian Authority of not being transparent, which prompted some of them to reduce grants, and others to stop them, while the United States stopped grants based on a congressional decision in 2017, when President Donald Trump was president of the United States.

As for the Arab donors, they did not explicitly explain the reason for suspending grants and aid directed to the Palestinian government, which plunged the latter into an escalating financial crisis.

Source: Anadolu Agency