As the coronavirus pandemic wreaked havoc on the world’s economy, Azzam Shawwa watched with envy as central bankers across the globe deployed their full arsenal of tools to support their nations through it.
But as the governor of the Palestine Monetary Authority, Mr Shawwa had few options. The Palestinian leadership in the occupied West Bank does not control its own currency — the economy operates on a mix of Israeli shekels, Jordanian dinars, and some dollars and euros — has negligible foreign reserves and cannot borrow from international markets.
The best Mr Shawwa could do was cobble together a $300m fund to offer struggling businesses loans at below-market interest rates. He also asked banks to give borrowers a four-month repayment holiday and allow some Palestinians to overdraw their accounts. Then, his ammunition ran out.
“Most central banks, they can really pump liquidity within their country, we don’t have this option,” Mr Shawwa said in an interview in Ramallah, the de facto capital of the West Bank. “The only thing we have is our reserves, so we are using the reserves to ease the pressure on the banks so that they can ease the pressure on the public.”
Mr Shawwa’s travails underscore the challenges that Palestinian authorities are grappling with as they try to support their battered economy — as well as the struggle they face in their fight to break the chain of infection.
Without control of its borders, the Palestinian Authority (PA) — the main Palestinian leadership in the West Bank — had to wait until Israel closed its own. The PA then imposed a crippling lockdown after infected Greek pilgrims visited Bethlehem in March.
Tens of thousands of Palestinians who cross to Israel for work on a daily basis were initially put up in dormitories in the Jewish state to reduce the risk of them bringing the virus home. But as the number of cases in Israel soared, they were sent back to the West Bank.
But it is the economy, which is dependent on Israel’s and was already weak after decades of occupation, that has proved the hardest to defend.
The central bank entered the crisis with just $1.2bn in reserves. And as rolling lockdowns have crippled the West Bank, lenders have approved just $15m in new loans. “You can’t just push a button and see things happen,” said Mr Shawwa.
The Palestinian economy, including Gaza which is controlled by Hamas, has a GDP of less than $15bn. It is probably bigger than that because of the informal sector, which is not fully captured. By contrast, Israel’s GDP was projected to be just under $400bn in 2020.
The situation is exacerbated by a stand-off with Israel over Israeli prime minister Benjamin Netanyahu’s threat to annex wide swaths of the West Bank.
Israel collects export taxes on behalf of the PA, but the Palestinian leadership’s decision to cut all official ties with the Jewish state during the row over annexation threatens to unravel a fragile customs union that has integrated the tiny Palestinian economy into the Israeli one.
Israel is holding an estimated $550m-$650m of Palestinian taxes as monthly meetings where the two foes would awkwardly reconcile their books have come to a halt. As a result, tens of thousands of Palestinian government employees are receiving less than half their monthly salaries.
This is the worst I have ever seen things, and it gets worse every month
Osama Amro, Aba’ad Contracting
“The Israelis say if you want your money, come and talk to us,” Mohammed Shtayyeh, the Palestinian prime minister, said in June. “They forget that we don’t trade money for politics. The money is ours, and when we ask for it, it is our right.”
Without the taxes, the PA is “in pure accounting terms, bankrupt”, said Raja Khalidi, director of the Palestine Economic Policy Research Institute.
The loss of that revenue — which accounts for nearly two-thirds of the PA’s budget — has meant that salaries for public sector employees are now in arrears, just as private sector employees are being laid off.
The PA and Israel could find “a face-saving measure” — such as Israel quietly paying out all of the money, or Palestinians agreeing to let Israel withhold some of it without contesting it — that would allow the salaries to start again, said Mr Khalidi. But that would not be enough to “bring the economy out of a coronavirus recession”.
As the coronavirus pandemic wreaked havoc on the world’s economy, Azzam Shawwa watched with envy as central bankers across the globe deployed their full arsenal of tools to support their nations through it.
But as the governor of the Palestine Monetary Authority, Mr Shawwa had few options. The Palestinian leadership in the occupied West Bank does not control its own currency — the economy operates on a mix of Israeli shekels, Jordanian dinars, and some dollars and euros — has negligible foreign reserves and cannot borrow from international markets.
The best Mr Shawwa could do was cobble together a $300m fund to offer struggling businesses loans at below-market interest rates. He also asked banks to give borrowers a four-month repayment holiday and allow some Palestinians to overdraw their accounts. Then, his ammunition ran out.
“Most central banks, they can really pump liquidity within their country, we don’t have this option,” Mr Shawwa said in an interview in Ramallah, the de facto capital of the West Bank. “The only thing we have is our reserves, so we are using the reserves to ease the pressure on the banks so that they can ease the pressure on the public.”
Mr Shawwa’s travails underscore the challenges that Palestinian authorities are grappling with as they try to support their battered economy — as well as the struggle they face in their fight to break the chain of infection.
Without control of its borders, the Palestinian Authority (PA) — the main Palestinian leadership in the West Bank — had to wait until Israel closed its own. The PA then imposed a crippling lockdown after infected Greek pilgrims visited Bethlehem in March.
Tens of thousands of Palestinians who cross to Israel for work on a daily basis were initially put up in dormitories in the Jewish state to reduce the risk of them bringing the virus home. But as the number of cases in Israel soared, they were sent back to the West Bank.
But it is the economy, which is dependent on Israel’s and was already weak after decades of occupation, that has proved the hardest to defend.
The central bank entered the crisis with just $1.2bn in reserves. And as rolling lockdowns have crippled the West Bank, lenders have approved just $15m in new loans. “You can’t just push a button and see things happen,” said Mr Shawwa.
The Palestinian economy, including Gaza which is controlled by Hamas, has a GDP of less than $15bn. It is probably bigger than that because of the informal sector, which is not fully captured. By contrast, Israel’s GDP was projected to be just under $400bn in 2020.
The situation is exacerbated by a stand-off with Israel over Israeli prime minister Benjamin Netanyahu’s threat to annex wide swaths of the West Bank.
Israel collects export taxes on behalf of the PA, but the Palestinian leadership’s decision to cut all official ties with the Jewish state during the row over annexation threatens to unravel a fragile customs union that has integrated the tiny Palestinian economy into the Israeli one.
Israel is holding an estimated $550m-$650m of Palestinian taxes as monthly meetings where the two foes would awkwardly reconcile their books have come to a halt. As a result, tens of thousands of Palestinian government employees are receiving less than half their monthly salaries.
This is the worst I have ever seen things, and it gets worse every month
Osama Amro, Aba’ad Contracting
“The Israelis say if you want your money, come and talk to us,” Mohammed Shtayyeh, the Palestinian prime minister, said in June. “They forget that we don’t trade money for politics. The money is ours, and when we ask for it, it is our right.”
Without the taxes, the PA is “in pure accounting terms, bankrupt”, said Raja Khalidi, director of the Palestine Economic Policy Research Institute.
The loss of that revenue — which accounts for nearly two-thirds of the PA’s budget — has meant that salaries for public sector employees are now in arrears, just as private sector employees are being laid off.
The PA and Israel could find “a face-saving measure” — such as Israel quietly paying out all of the money, or Palestinians agreeing to let Israel withhold some of it without contesting it — that would allow the salaries to start again, said Mr Khalidi. But that would not be enough to “bring the economy out of a coronavirus recession”.
