April 22, 2024
Finance

Palestinian Authority’s financial plight threatens US plans for post-war Gaza


WASHINGTON—The Biden administration is looking to financially prop up the Palestinian Authority amid warnings from officials in Ramallah that it is close to running out of money, potentially jeopardizing U.S. hopes that the organization will be able to govern Gaza when Israel’s war with Hamas is over.

WASHINGTON—The Biden administration is looking to financially prop up the Palestinian Authority amid warnings from officials in Ramallah that it is close to running out of money, potentially jeopardizing U.S. hopes that the organization will be able to govern Gaza when Israel’s war with Hamas is over.

The administration is trying to work around a law that prevents it from contributing directly to the Palestinian Authority, while also nudging allies to give more to the organization, U.S. officials said. Palestinian officials have warned that they could run out of the money needed to pay salaries and provide essential government services as soon as late February, the U.S. officials said.

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The administration is trying to work around a law that prevents it from contributing directly to the Palestinian Authority, while also nudging allies to give more to the organization, U.S. officials said. Palestinian officials have warned that they could run out of the money needed to pay salaries and provide essential government services as soon as late February, the U.S. officials said.

Early in the war in Gaza, the U.S. opted to rely on a revitalized Palestinian Authority as the best, if not only, option for what it has described as “the day after” the war ends. U.S. officials said they are concerned that without a revenue boost, the organization won’t be stable enough to maintain its hold on power in the West Bank, let alone be in a position to take on an expanded role.

The organization’s financial plight also limits its ability to implement overhauls the U.S. says are needed to secure support from Israel and from the Palestinian public. The Palestinian Authority has been dogged by accusations of corruption and ties to extremists that led to the cutoff of U.S. funds in the first place.

The Palestinian Authority has relied over the years on assistance from the U.S. and Europe and tax revenue collected by Israel. Cuts in aid by the Trump administration put the Ramallah-based organization under financial strain, and a suspension of Israeli tax revenue after the Oct. 7 Hamas attacks on Israel has left the Ramallah-based government “on the verge of financial collapse,” a senior Palestinian official told The Wall Street Journal.

In October, Israeli Finance Minister Bezalel Smotrich initially suspended the delivery of all tax revenue, which had been transferred monthly to the Palestinian Authority pending the ministry’s approval. The Israeli government then opted to suspend only revenue earmarked for the Palestinian Authority’s employees in Gaza, saying the funds go into the pockets of Hamas militants.

In response, the Palestinian Authority said it wouldn’t accept any partial revenue transfers. The organization pays the salaries of about 150,000 public-sector employees in the West Bank and Gaza, according to its official estimates.

In December, President Biden asked Israeli Prime Minister Benjamin Netanyahu to accept a proposal to transfer the frozen tax revenues to Norway for safekeeping until an arrangement could be found that would assuage Israel’s concerns that the money would fund Hamas, according to U.S. officials. Israel’s government said in January that it agreed to the plan, but U.S., European and Palestinian officials said a few sticking points remained.

Secretary of State Antony Blinken has said that the revenue should be conveyed to the Palestinian Authority in accordance with previous agreements, according to a statement about his meetings with Palestinian Authority President Mahmoud Abbas in January.

The Biden administration is struggling to overcome concerns about the Palestinian Authority’s aging leadership and unpopularity, particularly in Gaza, where it was ousted from power by Hamas in 2007.

If the organization runs out of money, U.S. officials say, it will be vulnerable to groups viewed by the U.S. and Israel as more extremist and opposed to compromise. It could also be overwhelmed by a deteriorating security situation in the West Bank, the officials say, amid an increase in clashes between Israeli forces and Palestinian militants, as well as attacks by Israeli extremists.

The Palestinian Authority has been in financial crisis since 2020, the senior Palestinian official said. The Palestinian finance ministry is operating under the “most restrictive budget, which is the worst-case scenario, paying a portion of public servants and trying to pay portions of previous debt,” he said. He added that he hoped international pressure would bring a speedy transfer of the funds.

The U.S. is limited in its ability to provide direct support. In March 2018, Congress enacted the Taylor Force Act, suspending U.S. bilateral economic assistance for the Palestinian Authority because of its practice of providing payments to Palestinians accused of terrorism and their relatives.

In 2018, former President Donald Trump directed the State Department to withdraw $200 million in aid that was originally planned for programs in the West Bank and Gaza, following a review of U.S. assistance to the Palestinian Authority. Biden reversed the move shortly after taking office, restoring much of the aid, which isn’t subject to the Taylor Force Act’s ban on direct assistance.

In January, as Congress grappled over a foreign-aid package that was passed by the Senate on Tuesday, Senate Minority Leader Mitch McConnell called the Palestinian Authority “relentlessly and thoroughly corrupt” and objected to including funding for Palestinian aid.

Some U.S. lawmakers described the United Nations and other international organizations as potential ways to circumvent Taylor Force Act restrictions. The bill approved by the Senate, which would provide $14.1 billion for Israel’s war against Hamas, includes almost $10 billion for humanitarian aid for civilians in conflict zones, including Palestinians in Gaza, which wouldn’t go directly to the Palestinian Authority. The bill still faces a significant hurdle in the House.

A boost by the U.S.’s European Union allies in financial support for the Palestinian Authority appears unlikely. “The EU is already doing an awful lot, but I don’t see that we are about to increase our support financially,” EU Special Representative for the Middle East Peace Process Sven Koopmans said in an interview.

While the Palestinian Authority is often subject to criticism over issues including corruption, it is “an essential partner and we have to stand by them and we also encourage them very much to reform and we are helping them on that,” Koopmans said. “If the PA collapses for any reason, it is a catastrophe for the security situation, for the Palestinians, for the Israelis and for the wider region.”

Fatima AbdulKarim contributed to this article.

Write to Vivian Salama at vivian.salama@wsj.com



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