The Palestinian Authority (PA) has avoided total economic collapse due to significant funding from the European Union and the World Bank, with limited financial support from Arab states, as highlighted in a recent study by the Institute of National Security Studies (INSS). The PA’s financial difficulties began in July 2018 when Israel started withholding tax revenues to counter the PA’s payments to terrorists and their families. The situation worsened in 2023 due to the war, which resulted in the loss of many jobs for Palestinians in Israel and a sharp decline in economic activity in the West Bank. Despite ongoing discussions among Israeli politicians about the PA’s potential collapse, the authority has managed to survive through 2026, primarily relying on foreign aid, which has become essential given its increasing structural deficit since 2018. In 2023, the PA’s domestic tax collection was only NIS 3.9195 billion against expenditures amounting to NIS 14.752 million.
Why It Matters
The PA’s reliance on foreign aid underscores the fragile state of its economy and governance, particularly amid escalating tensions and conflict. Prior to 2023, international funding had steadily declined, but following the war, foreign aid surged, indicating a shift in Western perceptions of the PA as a crucial partner for stability in the region. The PA’s financial struggles have led to significant cuts in civil services and delayed payments to employees, which not only affects the livelihoods of public sector workers but also the overall economic stability of the West Bank. With Arab state contributions dwindling, the PA’s dependence on Western support raises questions about its long-term viability and the implications for regional stability.
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