Palestinian Public Finances Under Increasing Pressure
The Palestinian public finances continue to face significant fiscal and economic pressures, driven by declining revenues, growing public-sector obligations, rising debt and arrears, and disruptions to essential services. The continued suspension of clearance-revenue transfers has further constrained the government’s ability to meet its financial commitments and maintain regular public services. Against this backdrop, the fiscal situation has increasingly affected public employees, the health sector, and the government’s overall financing needs.
Public finances remain under severe pressure, with the crisis increasingly reflected in unpaid salaries, rising debt-service costs, further accumulation of arrears and domestic borrowing, and disruptions to essential public services. The central constraint remains Israel’s continued suspension of clearance-revenue transfers since May 2025.
On 23 August, the Ministry of Finance paid only 50% of public employees’ salaries for May 2026, with a minimum payment of ILS 2,000, while accumulating further liabilities to employees.¹ The Palestinian National Authority (PA) has been paying partial and delayed salaries since November 2021.² To manage these accumulated obligations, the PA has introduced limited non-cash settlement mechanisms. The Yaboos application, launched in June 2026, allows public employees to use part of their outstanding government entitlements to pay electricity, water, telecommunications and internet bills.³ By the end of August, more than 53,000 employees had used the application and around 200,000 bills worth ILS 16m had been paid.⁴ Access to Yaboos was recently extended to civilian and military retirees and is expected to be expanded further to contract employees, as well as to municipal and other government services.⁵ A second ILS 500 credit was also disbursed to eligible employees in early September.⁶
By the end of May 2026, official public debt, excluding arrears and other obligations, stood at about $4.7bn, equivalent to roughly 28% of 2025 GDP.⁷ The Minister of Finance, Estepan Salameh, has, however, estimated the government’s total debt and outstanding liabilities at around $17.4bn, equivalent to about 101% of 2025 GDP, with roughly 51% related to employee entitlements and the pension system.⁸ Salameh also estimated the annual cost of government borrowing at around ILS 800m ($267m), compared with approximately ILS 409m in 2023.⁹
The consequences of the fiscal crisis are becoming particularly visible in the health sector. Salameh estimated government liabilities to the sector at around ILS 4bn, including about ILS 1.4bn owed to pharmaceutical and medical-supply companies and ILS 2.6bn to hospitals. By 17 September, the Pharmaceutical and Medical Suppliers Union reported that more than 200 of roughly 520 medicines supplied through the Ministry of Health had reached zero-stock levels, while suppliers were awaiting a government payment of only ILS 15m against outstanding liabilities (around 1%).¹⁰ The World Bank’s latest assessment noted that more than 70% of 2025 expenditure on essential medicines, health-facility operations and medical referrals was financed through deferred payments.¹²
The World Bank’s May Outlook projected a baseline fiscal deficit exceeding $1.2bn before aid in 2026, narrowing to about $400m after expected budget and development support.¹³ However, if clearance-revenue transfers remained fully suspended, the World Bank estimated that the financing gap after expected aid could rise to as much as $3.8bn, equivalent to about 22.1% of 2025 GDP. With clearance-revenue transfers still suspended, this has become the most likely scenario.
Budget and development support reached about ILS 523m ($171m) during the first five months of 2026, up 8.5% year-on-year.¹⁴ While external assistance is providing some relief, its scale remains small relative to the financing requirement. On 20 September, Prime Minister Mohammad Mustafa again called for additional direct budget support, alongside financing for the health and education sectors, during discussions with the World Bank.