"A financial crisis in the Palestinian Authority" – that is a convenient description of the situation where, on the eve of Ramadan, the Ramallah government is (again) unable to pay the full salaries of its 150,000 public sector employees. This is a short, but very inaccurate description, however. The crisis, says economist Raja Khalidi, is in the status quo that Israel has enjoyed since the Oslo Accords: Israel is in control of the West Bank and the Gaza Strip – and Palestinian society and the donor countries finance the cost of this domination.
The low salaries in the Palestinian enclaves (on average, less than NIS 2,000 per month) and the PA's large-scale withholding of wages is not some Icelandic story: These – just like the cost of housing in Israel, our tycoons and the state's wealth vs. citizens' miserable salaries – are all linked to the comprehensive economical regime that has been designed by Israeli governments between the river and the sea. It is further evidence of the Israeli crisis, even if for pragmatic reasons it is not talked about in the tent camps.
Khalidi is a development economist who has been working with the United Nations for over 25 years, and has written widely on Palestinian economic conditions in the occupied territories and Israel. "The delays in Arab pledges should not be overstated," says Khalidi (who answered questions via email). The immediate reasons for them may change, but, he says, "the roots of the chronic PA fiscal burden have more to do with the PA being forced in effect to shoulder the financial burden of occupation, both in terms of the costs of security and provision of public services, and appearing to the world as a 'state' government – with all the usual expectations that it will balance its finances and keep its public sector trimmed. There is not really a PA budget crisis: There is a crisis in the economic sustainability of the entire 'governance' project that has been in place since Oslo."
Isn't a public sector payroll of 150,000 (with more than 20,000 whose wages are paid by the Hamas government) a bit inflated?
Khalidi: "The public sector payroll, at an estimated $1.7 billion, is almost 25 percent of the gross domestic product – double or triple the proportion in other countries in the region. But GDP is depressed structurally as a result of prolonged occupation and hence the public sector share of a small total GDP appears large. The public sector share of GDP even seems inflated. This is a deliberate policy, which was in fact introduced by [Prime Minister] Salam Fayyad himself in 2001 in the wake of the second intifada, when he was the International Monetary Fund representative in Yasser Arafat's PA. He designed the first 'budget support' program funded by donors (first Arab, later European) for a very good Keynesian reason: In times of economic recession, government expenditure is needed to stimulate aggregate demand.
"So the continuation of the fiscal stimulus in place for 10 years is symptomatic not of a bloated PA public sector, but rather of a specific fiscal instrument that's still in place to combat the structural economic constraints created by occupation. It was a valid instrument 10 years ago and remains the only (limited, but still valid) fiscal policy instrument the PA has at its disposal. Without it Israel and the world would be faced with a major economic crisis in the occupied Palestinian territory."
Does the current crisis mean the end of the effort to reduce to zero donor budget support?
"The idea that reliance on donor support must be reduced as a matter of principle – despite the conditions of occupation, with no Palestinian sovereignty or national rights on the horizon – is a bit of a diversion and is in fact unfair to an economy that has been deprived of its capacity to produce, trade, grow and develop for over 40 years. Before donor aid can be effectively and usefully removed, the economy needs to be equipped with the productive means, the infrastructure and the freedom to build and grow, which have been denied in various ways in Gaza and the West Bank. And as long as Israel sits on Palestinian trade routes and captures up to half of the potential import taxes that should be destined for the PA and its strained public revenues – then there is no alternative to sustained donor aid. The PA should neither be ashamed to be dependent on aid, nor should it aim to reduce it; rather it can consider more effective ways of using the aid."
Why does the West appear more committed to contribute than the Arab countries?
"Even two generations after 1948, no Western donor, especially European and American, can be oblivious to their historic responsibility, and to the immediate security and political interests that the continuation of this conflict implies. Hence anything needed to keep a lid on things is to be expected, and indeed comes without asking the cost. As for Arab donors, they do not feel at all the historic responsibility for this situation: Their support for Palestine is more a matter of showing solidarity with their Palestinian brethren – a solidarity that grows and wanes with the Palestinians' domestic situation, with the pliability of the regimes in question when pressured by the West to play their role in this or that peace process, etc. So it is naturally neither predictable, nor seen as a matter of national security or political interest as it is for Western donors. Thus, for the West aid is an obligation they cannot escape; for Arabs it is a duty they must fulfill."
And now the West has a historic responsibility vis-a-vis the Oslo promises that were not upheld?
"It should not be forgotten that essentially the same occupation (with perhaps slightly less excellent services, no five-star hotels and no secure PA jobs), was maintained in 1993 with 22,000 employees, plus the Israeli army, plus around 120,000 Palestinians employed in Israel and contributing about the same share of the gross national product as PA expenditures do now. Today Israel doesn't have to provide Palestinians with jobs, public services or security while it continues to expand whenever it sees fit, thanks to a usually generous donor-funded PA budget. The very same budget which is now supposedly in 'crisis' because it cannot any longer maintain an arrangement which has allowed occupation to spread and deepen, and also costs less for Israel. It's basically a clever accounting trick, in light of the fact that the only party who should have a budget crisis is Israel, which otherwise gets a pretty good deal."