The Political Economy of Taming the Palestinian Authority

International donors have invested more than USD 34 billion in Palestine to support the Palestinian Authority�s (PA) state-building process and promote peace between 1993 and 2016. Foreign aid was distributed based on World Bank-designed internationally-led state-building programs, which focused on economic stability and separated state-building from the larger political context. International state-building efforts resulted in the fiscal and economic integration of the Palestinian economy and the PA with the Israeli economy. The World Bank concocted economic programs that intertwined economic activity between Palestinian and Israeli institutions. It further encouraged the PA to rely on local revenue sources to finance its operations. However, the Authority�s lack of territorial control, including borders, meant that Israel was responsible for the collection and distribution of most of the PA�s fiscal resources. Consequently, more than 80 per cent of the PA�s fiscal resources originated from clearance revenue or foreign aid and, as such, were controlled by Israel or international donors respectively. This chapter discusses the evolution of the PA�s dependence on external sources of income. It investigates the role of the World Bank in shaping the current financial structure of the PA and the economic interconnectedness of the Palestinian and Israeli economies. The chapter also explains how Israel�s control over the majority of PA�s fiscal resources has undermined its fiscal sustainability and independent decision making. It finally argues that internationally-led state-building efforts created PA institutions that were designed to operate only within the political context of Israel�s occupation.