| Published: July 27, 2026
US President Donald Trump (left) meets with Palestinian Authority President Mahmoud Abbas during a summit to support ending the two-year Israel-Hamas war in Gaza, Oct. 13, 2025, in Sharm El Sheikh, Egypt. (YouTube screenshot)
Funding from the World Bank and the European Union prevented the Palestinian Authority (PA) from suffering a financial collapse, according to a new study by Israel’s Institute for National Security Studies (INSS) released last week.
The report found that while the PA has relied heavily on foreign aid since its establishment in the 1990s, the vast majority of recent emergency funding came from Western donors rather than Arab states.
The study concluded that the surge in European and World Bank assistance has kept the Ramallah-based administration financially afloat despite declining revenues, mounting debt, and growing economic pressures following Hamas’ Oct. 7, 2023, attack on Israel.
The PA has also faced increasing financial strain after Israel reduced tax transfers over the administration’s controversial pay-for-slay payments that reward lethal terrorism against Jews and Israel.
Despite reassurances to the Trump administration that this antisemitic practice had ended, the PA appeared to have restored the pay-for-slay policy in May 2026. Endemic mismanagement and widespread corruption have also contributed to the PA’s worsening financial situation.
Israel’s collection of tax revenues on behalf of the PA was once one of the administration’s primary sources of income. The INSS report noted that Israel continues to collect taxes and customs revenues for the PA under the 1994 Paris Protocol.
However, since July 2018, Israel has deducted amounts equivalent to the PA’s spending on anti-Israel terrorism and has also used some of the funds to cover electricity and water expenses. As a result, annual tax transfers have fallen from approximately NIS 11–12 billion to just NIS 2 billion in 2025.
The INSS report noted that the PA’s financial crisis deepened significantly following Hamas’ Oct. 7 attack and the subsequent Gaza war.
“Since the outbreak of the “Swords of Iron” war in 2023, the economic collapse of the Palestinian Authority has become one of the most frequently discussed scenarios in Israeli political and security discourse. Israel’s withholding of clearance revenues, the loss of tens of thousands of jobs in Israel, the sharp decline in economic activity in the West Bank, and the PA’s steadily mounting debt have led many to assess that its collapse is only a matter of time.”
Israel’s decision to replace many Palestinian workers from Judea and Samaria, internationally known as the West Bank, with foreign workers from India, Thailand, and China was driven by security considerations.
Some analysts in Israel and abroad have warned that a complete collapse of the PA could pave the way for a Hamas takeover of the territory.
The report highlighted the depth of the PA’s fiscal imbalance. In 2023, the administration collected NIS 3.9 billion (about $1.15 billion) in domestic tax revenue and NIS 1.6 billion (nearly $470 million) in non-tax revenues, while total expenditures reached NIS 14.8 billion (about $4.35 billion).
To offset the shortfall, foreign aid increased dramatically, rising from NIS 755.2 million (around $222 million) in 2023 to NIS 2.5 billion (about $735 million) in 2024 and NIS 6.2 billion (approximately $1.82 billion) in 2025. According to the report, this influx of foreign assistance prevented the PA from accumulating a deficit severe enough to trigger a financial collapse. Most of the funding came from the European Union and the World Bank.
In comparison, Arab states contributed only NIS 611.2 million (about $180 million) in 2024, with that figure falling further to NIS 392.3 million ($115 million) in 2025.
The INSS attributed the sharp increase in Western assistance to a broad consensus among Western governments that the PA remains “an indispensable partner for any future diplomatic settlement – and that its collapse could destabilize the West Bank and undermine broader regional interests.”
The Western funding is officially intended to stabilize the PA’s finances. However, The Jerusalem Post previously reported that European funds are frequently deposited in Palestinian Arab banks that are reportedly facilitating the continuation of the PA’s pay-for-slay policy that supports terrorism rather than improving the economic situation for local PA residents.
Earlier this month, an EU-backed donor initiative pledged $1 billion for Gaza reconstruction. The project is supported by 10 EU member states, Switzerland, and the European Investment Bank.
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