EU, World Bank funds saved Palestinian Authority from economic collapse, INSS finds

The Palestinian Authority (PA) has narrowly avoided complete economic collapse primarily due to substantial financial aid from the European Union and the World Bank, a report by the Institute of National Security Studies (INSS) reveals. Support from Arab states has been minimal, with Western funding playing a critical role in sustaining the PA's finances.

Israel began withholding tax revenues in July 2018 to offset the PA's "pay-for-slay" payments to terrorists and their families, significantly straining the PA's budget. The economic instability deepened after the 2023 war, leading to the loss of tens of thousands of Palestinian jobs in Israel and a sharp decline in economic activity in the West Bank.

Despite predictions of imminent collapse by some Israeli politicians, the PA has survived through 2026 by implementing significant cuts to civil services and salaries. The INSS report highlights that without foreign funding, the PA would have faced a structural deficit as early as 2018, a gap that widened considerably after the Hamas-led October 7 invasion in 2023.

In 2023, the PA's total expenditure was NIS 14,752 million, with domestic tax collection and non-tax revenues amounting to NIS 3.9195 billion and NIS 1.591 billion respectively. The majority of funds, NIS 10.035.4 billion, were collected by Israel on the PA's behalf. Foreign aid, which jumped from NIS 755.2 million in 2023 to NIS 2.742.3 billion in 2025, has been crucial in offsetting the decline in Israeli clearance revenue receipts. These receipts have fallen due to Israeli deductions for expenses and "pay-for-slay" payments, leaving the PA with significantly less funding in recent years.