EU promises support to PA as Israel withholds tax revenues, economy impacted by Gaza war

EU officials met with the Palestinian minister of finance, Shukri Bishara, and the governor of the Palestinian Monetary Authority (PMA), Feras Melhem, to discuss the impact of the ongoing war by Israel against Gaza on the Palestinian economy.

The economy has suffered US$2.3 billion in losses since the beginning of the war on Gaza, according to the Palestinian Ministry of Economy. 

The World Bank recently warned that it expects the West Bank and Gaza economy to contract by 3.7% because of the war. It initially anticipated a growth of 3% in 2024, but now it expects an overall contraction of 6%. This adjustment is based on the assumption that the severity of the conflict will decrease this year.

Israeli deductions of Palestinian tax revenues, which violate existing agreements and risk leading to the collapse of the Palestinian Authority, have compounded the financial problems facing the Palestinian Authority. 

'The EU is working with international partners to address this issue and find immediate solutions', the EU said. 

'The EU and the European Investment Bank will continue to support the PMA's role in ensuring a resilient banking sector and providing crucial financing to businesses during these challenging times', the statement added. 

The Palestinian Authority relies heavily on tax funds Israel collects on its behalf to pay salaries and the delivery of public services.

1/3 🇪🇺 EU Representative Alexandre Stutzmann had meetings today with the Palestinian Minister of Finance Shukri Bishara and PMA Governor Feras Melhem to discuss the impact of the ongoing war in Gaza on the fiscal situation and the Palestinian economy.

— EU and Palestinians (@EUpalestinians) January 17, 2024

Recent US efforts to persuade Israel to release the tax returns to the cash-strapped PA have failed. 

Last October, following the Hamas attacks, Israel's far-right ultranationalist finance minister, Bezalel Smotrich, stopped the transfer of all of the tax revenue funds. 

However, the Israeli government said that it would transfer a partial amount, excluding what it says goes to Hamas-run Gaza.

The PA has thus far refused to take a partial transfer of the funds. 

Clearance revenues, which are import taxes collected by Israel on behalf of the PA, have become a political blackmail tool of successive Israeli governments. These revenues account for roughly 65 per cent of the PA's budget.