MAS Addresses UNGA@80 Event on Safeguarding Liquidity and Stability Amidst the Financial Crisis in the oPt

On Wednesday, September 17, 2025, Raja Khalidi, Director General of the Palestine Economic Policy Research Institute (MAS), spoke at a panel on the Financial Crisis in the oPt: Safeguarding Liquidity and Stability. The side-event was organized within the framework of the 80th Session of the United Nations General Assembly (UNGA 80) taking place in New York and next week’s conference on Palestine.

The discussion was co-hosted by the Charity & Security Network (C&SN), the Permanent Mission of Colombia to the UN, the UN Special Rapporteur on Counter-Terrorism & Human Rights Prof. Ben Saul, Oxfam International, and the UN NGO Working Group on Israel-Palestine. It convened UN Member States, UN agencies, financial and economic experts, and humanitarian and development actors involved in a working-group, operating as part of the Palestine conference machinery.

Khalidi joined a panel including UN representatives and international NGOs that focused on practical measures to enhance Palestine’s liquidity and financial stability. The goal was to discuss how to translate previous international commitments into a technically robust and politically realistic pathway forward that safeguards liquidity, rebuilds financial infrastructure, and ensures the viability of a Palestinian State.

Following is a transcript of Mr. Khalidi’s presentation to the panel:

“A. Facts of the Crisis and Macroeconomic Impact

There is no longer a Palestinian macroeconomy to speak of, if one virtually may have existed before 2023 in our thinking and statistics and planning. In reality the carving up of the Palestinian “national economy” began 20 years ago, with the geographic and political division between the West Bank and Gaza Strip, the detachment of east Jerusalem behind the Separation Wall, and the acceleration of transforming the West Bank into an incoherent archipelago of enclaves amidst an Israeli settlement enterprise covering 60% of the West Bank.

Even as the PA continues to function as de-facto self-governing authority for the economy and basic services of some 5 million Palestinians without defined geographic jurisdiction, it has lost its minimal fiscal space over the course of the war. Its role as employer of last resort and its legal and security legitimacy continues to be eroded.

The financial sector however, has remained not only sound and compliant with international banking and monetary standards, but provided a safety valve for households under financial pressure and a safe refuge for Palestinian capital amidst war. It has also shored up straining public finances, and been able to quell moments of market panic over liquidity and banking anxieties… No mean feat, even as its ability to operate in Gaza has been constrained to digital banking, which only a minority of the population can access.

The deep structural distortions of the Palestinian “macroeconomy” which have deprived it of any economic policy space is why today’s liquidity crisis that previous speakers described granularly, is not just about aid delivery, market stability or financial intermediation. It is about whether the Palestinian economy can function at all and ensure threatened livelihoods.

Regardless of the losses suffered by the banking sector in Gaza and inevitable write-off of around a $1bn of household and other debt there, it would appear that the PMA and banks have a major role not only in absorbing the shocks of this war, which have yet to cease, but no less in the recovery and rebuilding that must come sooner than later.

The Palestinian banking sector has so far been able to address the immediate and future challenges as best possible in the political circumstances, but it cannot be expected to perform if other components of the financial system are dysfunctional, especially the public treasury and freely circulating currency to finance trade and other exchanges. 

It is the Israeli threats to these channels of economic relations that will be so critical in the coming few weeks. Whereas a forthcoming study by MAS has documented how Israel has violated practically every article of the Paris Economic Protocol, the only articles which it has yet to renounce by its unilateral actions are those concerned with Monetary and Banking relations. So, from the vantage point of an Israeli Minister of Finance intent on collapsing the PA and the Palestinian economy along with it, the clock is ticking.

That is today’s  political challenge before the champions of the NY Declaration, and any new “peace process” it might herald.

B. Actionable Policy Recommendations Linked to NY Declaration Commitments

As the UNGA document has recognised, an economically viable Palestinian state requires stable financial channels, predictable revenues, and integration into the international financial system. The economic components of the Annex provide a panoply of urgent and less urgent measures across the board of the real economy, the financial sector, economic governance and reform. These are too numerous to review here, and in fact I would suggest are in need of rigorous screening in terms of urgency/priority and feasibility/cost.

I focus on those which I think are most urgent and actionable in the current climate, within the broader goal of providing muscle and traction to recognition of the State of Palestine, through bolstering “sovereign economic functions” even amidst war.

1. Take forward the commitment to fully integrate the State of Palestine into the international financial and monetary system. This means:

a. supporting its path to an upgraded status in the IFIs,

b. seeking observer member status in the WTO, which would recognize Palestine as a “separate customs territory”.

Steps in this direction, if only tentative, should not be conceived as diplomatic gains, but rather as keys to access to concessional financing and markets.

2. Consolidating Palestinian Fiscal Space goes beyond the release of withheld clearance revenues, which is contingent on an Israeli government policy that simply does not exist today. Simply stated, sovereign borrowing status for the State of Palestine should ensue from global recognition. Meanwhile, action can begin on designing a new framework for clearance revenue transfers for the post war phase, with international oversight, ensuring predictability and Palestinian ownership.

3. Alongside the funding of relief, recovery and reconstruction, experience over the past 20 years of budget support show that it is a slippery slope. However donors’ memories seem to be short, and Palestine’s  institutional capacity to implement reforms and maintain financial stability should not be linked to such budgetary bailouts. Much better to restore normal channels of Palestinian fiscal revenues and let the government do its job of improving its budgeting, cutting expenditures etc.

4. As for Banking System Stability of course the next test looming for Mr. Smotrich and the credibility of this process, will be whether the G-7 and US Treasury can again come to our rescue and ensure extension of the waiver that provides indemnity for Israeli banks to engage with Palestinian counterparts beyond November 2025.

If we were to only focus on achieving the above commitments, as complementary elements of the same package, then the transformative effect would enable and justify a host of other financial and economic governance reforms of the putative State, not of an obsolete self-governing authority.”