The Palestinian Authority has avoided total economic breakdown thanks to assistance from the European Union and the World Bank, while Arab states supplied only a minor portion of the needed support, according to a study released last week by the Institute of National Security Studies.

The PA has endured a well-known financial strain. After Israel started withholding tax revenues in July 2018 to counter payments made to terrorists and their families, the Fatah-led body encountered mounting fiscal pressure. The 2023 war intensified these challenges, as many Palestinians lost jobs in Israel and economic activity in the West Bank dropped sharply.

Israeli leaders have long speculated about the PA's potential collapse, yet the authority has endured into 2026 by slashing civil services and public salaries. INSS research shows this continuation stems mainly from Western foreign aid.

Absent external support, the PA would have faced a structural deficit starting in 2018, when spending outpaced its own revenues, a gap that grew wider following the October 7, 2023 events.

In 2023 the PA collected NIS 3.9195 billion in domestic taxes and NIS 1.591 billion in non-tax income, while total spending reached NIS 14,752 million.

Israeli collections accounted for NIS 10.0354 billion of the total, with foreign aid adding NIS 755.2 million.

Foreign aid offsets decline in PA tax revenues

Foreign aid rose from NIS 755.2 million to NIS 2.5178 billion in 2024 and NIS 2.7423 billion in 2025, even as Israeli transfers fell to NIS 6.8568 billion in 2024 and NIS 6.1557 billion in 2025.

This external support, though not covering every promised amount, has kept the PA from running deficits in recent years.

Clearance revenues collected by Israel under the 1994 Paris Protocol previously delivered roughly NIS 11-12 billion yearly, though deductions for utilities reduced the PA's share to about NIS 8.8 billion.

From 2023 onward, larger withholdings to offset pay-for-slay costs and Gaza staff payments left the PA with NIS 7.9 billion in 2023, NIS 4.4 billion in 2024, and NIS 2 billion in 2025.

As of 2025 the PA receives no further clearance revenues.

International funding had fallen from NIS 2.4 billion in 2018 to about NIS 1 billion in 2021 before the war, but the trend reversed after 2023, reaching NIS 3 billion in 2024 and NIS 3.2 billion in 2025.

Arab states provided only NIS 611.22 million in 2024 and NIS 392.33 million in 2025.

EU contributions grew from roughly NIS 327 million in 2023 to over NIS 1.5 billion in 2025, while World Bank support increased from about NIS 283 million to NIS 838 million in the same span.

INSS attributes the rise in Western aid to Europe's view of the PA as essential for future diplomacy and regional stability.

European funds have at times flowed into Palestinian banks suspected of handling pay-for-slay transfers.

In June the European Investment Bank and European Commission announced a €395 million injection into the Palestinian economy, routed through institutions such as the Bank of Palestine rather than directly to the PA.

That bank has declined Israeli requests to close accounts used for payments to released terrorists.

The PA has also managed its shortfall by delaying wages, pensions, and supplier payments, while securing credit lines from local banks.

In 2024 and 2025 public sector workers received only about 70 percent of owed salaries, with the remainder logged as future debt.

Although this approach sustains short-term operations, the growing obligations threaten long-term service delivery.