The Palestinian Authority has been in crisis for years and has struggled to pay back its arrears amid dwindling international aid. Israel has often withheld taxes collected on behalf of the Palestinian Authority to punish its leadership. At times, Israel has provided tens of millions of dollars to keep it afloat.
But many consider the West Bank’s current economic woes to be the most difficult yet.
Tens of thousands of Palestinians who had worked in Israel were barred from entering the country following the October 7 Hamas-led attack, leaving a large number of Palestinians jobless overnight. Israeli military raids, road closures and tighter checkpoints have further strangled the Palestinian economy.
Before the war, Mahmoud Abu Issa, 53, earned more than $2,000 a month as a construction worker in Israel — an enviable salary in the impoverished West Bank. Since Israel banned most Palestinian workers from entering the country, he has been unemployed, except for occasional day labor, where he earns about $10 a day.
His son, who had worked with him in Israel, started building the house before the war broke out, but he said it had never been finished since his wages ran out.
“We sit there day and night hoping that things will change,” Mr. Abu Issa said. “But nothing happens.”
Under the agreement, Israel collected and transferred hundreds of millions of dollars in tax revenue to the Palestinian Authority. Smotrich withheld these funds, which make up the majority of the Palestinian government’s budget, exacerbating the Palestinian fiscal crisis.
As a result, the Palestinian leadership has been struggling to pay the salaries of at least 140,000 employees, according to officials at the Palestinian Authority’s Finance Ministry. For years, many have received only partial, often irregular, salaries; last month, most received only 50 percent of their salaries.
Shadi Abu Afifa, a father of four who lives near Hebron, had his $930 monthly salary as an officer in the regime’s security forces cut in half last month. To save money, he said his family has stopped buying cooking gas and given up other modest luxuries, like internet at home.
“If the economy gets better, we might feel some hope again,” Mr. Abu Afefa said. “Because right now, we are in a terrible, suffocating situation — war, unemployment, everything.”
U.S. officials have pressured the Israeli government to release the funds, fearing further economic hardship could lead to more violence in the West Bank. National Security Adviser Jake Sullivan this week called for the funds to be released “immediately.”
Last month, after three European countries announced they would recognize a Palestinian state, Smotrich announced he would not extend a waiver that was set to expire on July 1 and protects Israeli banks from legal liability for working with Palestinian banks.
Without their own currency, Palestinians typically use Israeli shekels. If Palestinian banks want to offer shekel accounts, they must maintain ties with Israeli banks and rely on them to process shekel transactions.
Israel’s Ministry of Finance has issued an exemption to provide compensation to Israeli banks since 2017, according to ministry spokesperson Lilach Weissman. Banking experts say Israeli banks may cut ties with Palestinian banks if the exemption is not renewed.
“The consequences are terrible and dangerous for everyone,” said Akram Jerab, chairman of Quds Bank, which has 31 branches in the West Bank.
At a cabinet meeting late Thursday night, Smotrich agreed to a temporary extension of immunity for four months, ministerial spokesman Eytan Fuld said. It was unclear what would happen after that.
If he eventually follows through on his threat to let the waiver lapse, it could also have economic consequences for Israel, experts say. Palestinian merchants would be unable to pay Israeli suppliers for imported goods through their banks. Azzam al-Shawwa, a former senior Palestinian banking regulator, said Palestinians would be unable to pay Israel for necessities such as fuel, water and electricity.
“Israel’s trade is inseparable from Palestine,” al-Shawa said in an interview. “Palestine is one of Israel’s largest trading partners. Is Smotrich ready to lose that?”
Rawan Sheikh Ahmed Contributed reporting.
