Palestinian banking and economic crisis

Yahya Shanar, Governor of the Palestine Monetary Authority, has warned that the Palestinian economy is facing a financial and banking crisis with political dimensions linked to Israeli measures. Key issues include threats to correspondent banking relationships, the withholding of clearing revenues, and the accumulation of over 15 billion shekels in surplus cash that cannot be returned to Israel.

Shanar noted that these challenges impact trade, payments, and the economy’s ability to meet essential needs. He emphasized that these banking relationships facilitate approximately 50 billion shekels in annual transactions, which are vital for importing food, medicine, and fuel. He has warned that unilateral decisions or the reduction of legal coverage periods to just two weeks create extreme uncertainty.

During meetings at the IMF and World Bank annual meetings in Bangkok, Shanar met with British Foreign Secretary David Lammy to discuss forming an international alliance to protect the Palestinian banking sector. He has urged for increased coordination with the Bank of England and the UK Treasury to establish practical mechanisms and clear guarantees for financial channels, rather than relying on non-binding temporary measures.

Expanding on economic recovery, Shanar met with Arab governors and World Bank Group President Ajay Banga to advocate for Gaza reconstruction to be led by Palestinian institutions. He noted that Palestinian banks are ready to support these efforts, citing a capital adequacy ratio exceeding 17% and fully automated digital payments in Gaza. With international estimates placing Gaza’s reconstruction costs above $71 billion, Shanar urged for expanded funding through mechanisms like the Palestinian Reconstruction and Development Fund (PFRD) and International Finance Corporation (IFC) tools.