The Palestinian Authority is facing its biggest economic crisis since its establishment in 1994

The West Bank is going through its worst economic crisis since the establishment of the Palestinian Authority in 1994. The government of octogenarian Mahmoud Abbas has taken urgent measures in recent weeks to alleviate an economy that has been stagnating for years, long before the outbreak of COVID-19, but aggravated by the pandemic and the Russian invasion of Ukraine, which have left a bleak scenario for a region that is seeing poverty rates soar.

The drastic reduction in international aid as a result of the global recession and, above all, the multiple restrictions imposed by Israel on trade, movement and access have led to a situation partly caused by rampant corruption, which extends to the family and the president's inner circle. The region's lack of statehood and 'de facto' control over the territory it governs further hampers the ability to coordinate a comprehensive response.

The government of Prime Minister Mohammad Shtayyeh, in office since April 2019, attributed the crisis to external causes during a ministerial conclave, related to declining aid from abroad, although it pointed to the state of Israel for financial deductions from customs revenues as the main culprit. "Israel taxes more than 200 million shekels a month (€57 million) from customs funds owed to us."

Since the beginning of the pandemic, several donor countries have been suspending or reducing financial support to the Palestinian Authority due to the global crisis. But once the pandemic is over, such support is not expected to return, at least not in the usual amounts. The provision of funds from Arab nations, the US, Japan and other international organisations was intended to alleviate a structural crisis that seems to have been exacerbated.

Public debt has risen to 32 billion shekels, the equivalent of some 9.175 billion euros, according to the latest figures. The numbers prompted the Palestinian Finance Minister, Shoukry Bishara, to present a project to mitigate the crisis that included a drastic reduction in public subsidy spending, which has materialised in a 20% drop in salaries, already eroded by rising prices.

Annual GDP growth averaged 1.3%, lower than the rate of population growth, resulting in falling per capita incomes and rising poverty between 2017 and 2019, according to World Bank (WB) data. The latest projections, also based on this variable, show the poverty rate soaring to 29.7% in 2020, an increase of almost eight percentage points since 2016. Of the nearly three million people living in the West Bank, half live below this threshold.

"The economic consequences of the war in Ukraine and associated sanctions may also affect the outlook through rising inflationary pressure," notes the World Bank in its latest report on the area. The humanitarian organisation Oxfam adds that wheat flour stocks in Gaza and the West Bank "could run out in three weeks and the cost of this staple food has shot up by almost 25% due to the Ukraine crisis".

Oxfam's country director, Shane Stevenson, says that "Palestinian households are being hit hard by rising global food prices, and many are struggling to meet their basic needs". However, the WB is optimistic that incomes are expected to rise by 2022 as a result of rising rates. In addition, the poverty rate is projected to fall to 26.7% in 2022, and to continue to fall gradually to 26.1 % over the next two years.

The International Monetary Fund (IMF) cannot provide financial assistance to the West Bank because it is not a member state, although it has advised the region since its establishment 28 years ago. The World Bank itself has provided assistance, most recently in April with an $8 million grant to reform public financial management, which aims to 'strengthen institutions to improve accountability and transparency and support fiscal stability'.

Polls show widespread public dissatisfaction with the Rais, President Abbas, the successor to the legendary Yasser Arafat. More than two-thirds demand his retirement after 17 uninterrupted years in power following a mandate marked by obvious corruption and deep political division, coprotagonised by Hamas, which undermines his legitimacy. 

Abbas called for legislative and presidential elections in 2021, but they were cancelled on the grounds that Israel would not allow Palestinians living in East Jerusalem to vote. The president of the Palestinian Authority, the Palestine Liberation Organisation (PLO) and leader of Fatah holds all the power in the midst of a severe economic crisis without having appointed a successor, a source of concern for the international community.