Jan 19, 2022 - World

Palestinian Authority seeks EU aid as budget crunch deepens

Mahmoud Abbas speaks in Brussels in 2018. Photo: Dario Pignatelli/Bloomberg via Getty

RAMALLAH, West Bank — The Palestinian Authority hopes to put the stifling fiscal crisis it faced in 2021 behind it, but that will depend in large part on a pledge from the European Union.

Why it matters: The U.S., EU, Israel and the PA itself all fear that failing to pay public sector salaries could trigger the Palestinian government's collapse.

  • The PA struggled throughout 2021 to pay its 140,000 employees in the West Bank and Gaza Strip.
  • In November and December, the PA paid employees between 70% and 80% of their salaries and said it would repay the difference if funds became available.

The backstory: According to Palestinian Finance Ministry, international aid to the Palestinian budget continued its steep decline from $1.3 billion as of 2013 to $129 million last year.

  • Meanwhile, the PA's debts to local banks amount to $2.37 billion — higher than the official borrowing limit.
  • Israel collects tax revenues for the PA, but has deducted $400 million since Jan. 2019, according to the Palestinian Finance Ministry. Israel claims that's equivalent to the amount the PA pays annually to the families of Palestinian prisoners in Israel — payments Israel has demanded be halted.

What they're saying: Ibrahim Melhem, spokesman for the Palestinian government, told me the government hopes to see movement in the coming months, based on promises from the Europeans to resume pumping funds to the Palestinian treasury and development projects.

  • Melhem said he expects European support to resume in May and that Algeria's recent pledge of $100 million "is a good indication that the Arab brothers can resume financial support" ahead of the upcoming Arab League Summit in Algiers.

Behind the scenes: The U.S. and other Western countries are closely following the PA's financial difficulties. A senior U.S. official tells me the Biden administration has asked a number of Arab countries to provide financial support.

  • A European source with insight into the thinking in Brussels told me the EU fears the budget crisis will have steep consequences for the PA's ability to carry out its duties to the Palestinian people.
  • An announcement on the EU's financial support for the Palestinians over the next four years — currently estimated at $340 million annually — has been expected for several months but not made. The source expects it to come soon.

Worth noting: President Mahmoud Abbas’ Fatah party Tuesday nominated Civilian Affairs Minister Hussein al-Sheikh to the membership of the Palestine Liberation Organization executive committee.

  • That means al-Sheikh is likely to take the seat of the late Saeb Erekat and officially become the chief Palestinian negotiator and primary point of contact with Washington.

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