Palestinian Revenue Lifeline: Israel's Hold on Clearance Funds Deepens Economic Crisis

Alanbatnews -

The Palestinian Authority (PA) faces a deepening economic crisis as Israel continues to withhold and deduct from clearance revenues, a critical source of income, impacting the PA's ability to pay salaries and provide essential public services. The clearance funds, comprising taxes on goods imported into Palestinian territories, collected by Israel on behalf of the PA, represent approximately 65% of the PA's total revenue.

The ongoing disruption of these funds exacerbates financial instability, delaying salary payments to government employees and diminishing their value. This reliance on clearance revenues makes the Palestinian public finances vulnerable to any disruption or delay in transfers. The PA has become increasingly reliant on the Palestinian banking sector to finance employee wages, raising long-term debt for local banks from $1.04 billion to $1.59 billion between October 2023 and July 2024.

Israel's actions, including deductions and delayed transfers, have been criticized as a form of political leverage. According to the Palestinian News Agency, Israel withheld approximately 7 billion shekels in transfers from 2019 to 2025. The cumulative amount from border crossing fees that Israel has refrained from transferring is estimated at $250 million between 2008 and 2025.

Israel justifies withholding these funds under various pretexts, including deductions for allocations to the Gaza Strip and social welfare payments to families of martyrs and prisoners. In March 2018, the Knesset approved a law legalizing the seizure of funds equivalent to the amounts allocated by the PA to families of martyrs and prisoners, amounting to approximately 3.7 billion shekels in deductions between 2019 and 2025. In January 2026, Israel announced the transfer of 149 million shekels from Palestinian clearance funds to Israeli families as financial compensation, claiming that their family members were killed in Palestinian attacks, while it had refrained from transferring the clearance to the Palestinians for seven consecutive months, in what was described as an economic siege.

The clearance mechanism is based on the Paris Agreement, officially known as the Protocol on Economic Relations, signed on April 29, 1994, as an economic annex to the Oslo Accords between the Palestine Liberation Organization and Israel, aimed at regulating economic relations between the two parties. The protocol stipulates that the Israeli Ministry of Finance collects clearance funds at border crossings and transfers them to the Palestinian side on a monthly basis, after deducting a commission estimated at about 3% for collection services. It was promoted as a temporary arrangement for the transitional period since the Oslo Accords, which is five years. However, work on it has continued, which has tightened Israeli control over the Palestinian economy. Under it, Israel imposes restrictions on most aspects of Palestinian economic life through its complete control over crossings and linking economic permits to security considerations, and preventing the Palestinian economy from dealing with countries that do not have political or commercial relations with Israel or are in a state of conflict with it.

In January 2024, the Israeli cabinet approved a mechanism to transfer clearance funds allocated to Gaza (approximately $74 million per month) to the Palestinian Authority through a third party, Norway, with conditions ensuring Israeli control over how the PA spends these funds so that none of it reaches the sector. Analysts described it as an "international legitimization" of deducting Palestinian money. Despite Oslo's agreement to play the role of mediator in transferring frozen taxes to the Palestinian Authority, Israel canceled the agreement after Norway recognized the State of Palestine on May 28, 2024, along with Spain and Ireland.

Unemployment rates in the West Bank witnessed a significant leap in 2023 after Israel doubled the amounts deducted from the clearance. Poverty and food insecurity rates also increased. Observers have warned that the continued withholding of clearance funds threatens the ability of government institutions to meet their financial obligations towards various vital sectors, especially the health sector. The PA suspended security coordination with Israel in May 2018 in response to the transfer of incomplete clearance funds, but it resumed it in November 2019, and over the years has directed appeals to the international community to pressure Israel to transfer the withheld funds.