Palestinian finances near collapse as cuts deepen, says monetary chief

Palestine Monetary Authority's debt levels have soared to $3 billion

A Palestinian man washes his horse in the waters of the Mediterranean Sea as people swim on a hot day in the northern Gaza Strip June 18, 2019. REUTERS/Mohammed Salem     TPX IMAGES OF THE DAY
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Palestinian finances are on the brink of collapse after hundreds of millions of dollars in US aid was suspended, the head of the Palestine Monetary Authority said on Tuesday.

Mounting financial pressure on the PMA  has sent its debt soaring to $3 billion (Dh11.01bn), and led to its $13bn economy contracting severely for the first time in years, Azzam Shawwa said.

Mr Shawwa said President Mahmoud Abbas’s Palestinian Authority, which exercises limited self-government in the Israeli-occupied West Bank, was going through a critical point.

“What’s next, we don’t know," he said during a visit to Jordan. "How we are going to pay salaries next month?

"How are we going to finance our obligations? How will daily life continue without liquidity in the hands of people?

“I don’t know where we are heading. This uncertainty makes it difficult to plan for tomorrow."

The steep cuts in US aid over the past year were regarded as an attempt to push the authority back to the negotiating table after it cut off political dealings with the Trump administration in 2017.

That move followed US President Donald Trump’s decision to recognise Jerusalem as the capital of Israel and to move the American embassy to the city, reversing decades of US policy.

The White House is eager for Palestinians to engage with a long-delayed Middle East peace plan drawn up by Mr Trump’s son-in-law, Jared Kushner.

The plan’s economic component is to be unveiled at a conference in Bahrain next week, which the Palestinians are boycotting because of pro-Israel bias by Washington.

The authority has had to increase borrowing from 14 banks to weather its financial crisis, Mr Shawwa said.

About a third of the $8.5bn in bank loans and facilities is owed by the authority, and the remainder by the private sector.

“Without that there would have been a financial collapse," Mr Shawwa said. "I have worries for the first time over financial stability."

He said the once flourishing West Bank economy, which had average growth of 3.3 per cent in recent years, had gone into the red.

The sudden layoff of thousands of people once dependent on US-financed projects worsened government finances through lower tax collections and led to more defaults on bank loans from troubled companies, Mr Shawwa said.

“We are being fought by the most important power in the world,” he said, referring to the Trump administration.

The only thing holding off a major economic crisis was cash earned by the over 100,000 Palestinians who work in Israel, and remittances from Palestinians working abroad.

Mr Shawwa, who has been invited to attend the Bahrain conference, said it was difficult to see how any plan would go ahead without willing Palestinian partners.

“Is it in the interest of America to break the Palestinian economy?” he asked.