Palestinian Monetary Authority Warns of Banking Crisis, Seeks IMF Intervention

The Governor of the Palestinian Monetary Authority (PMA), Yihya Sahnar, has called on the International Monetary Fund (IMF) to intervene and find a radical, sustainable solution for correspondent banking relations with Israel, under neutral international supervision. Sahnar emphasized the need to ensure the continued flow of payments and the return of shekel cash to Israel, free from political disputes and unilateral decisions. He made these remarks during a meeting of finance ministers and central bank governors from the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region with IMF Managing Director Kristalina Georgieva.

Sahnar stressed the importance of maintaining correspondent banking relations and ensuring the continuity of shekel cash repatriation, stating these issues should not be subject to unilateral decisions. He advocated for addressing concerns through direct dialogue between the PMA and the Bank of Israel, with IMF support, to establish clear, stable, and predictable rules that uphold mutual obligations. He noted that approximately 50 billion shekels are transacted annually through correspondent banking with Israeli banks, covering essential payments for food, fuel, medicine, salaries, customs, and aid, making these relations vital for Palestinian economic and financial stability.

The PMA governor warned that reducing the legal coverage periods for these relations to two weeks exacerbates uncertainty, especially as Palestinian banks face restrictions on returning shekel cash to Israel while clearance revenues remain withheld. He stated that the convergence of these factors intensifies pressure on public finances, the banking sector, and the overall Palestinian economy. Sahnar highlighted that the Palestinian economic crisis is compounded by war, displacement, and restrictions on the banking system and other economic sectors, threatening the foundations of a sustainable national economy and hindering the ability to build a state.

In response to these challenges, Sahnar outlined measures taken by the PMA to bolster the banking sector's resilience, including injecting liquidity, rescheduling debt payments, supporting small and medium-sized enterprises, enhancing banking supervision, and developing digital payment systems. He pointed out that the capital adequacy ratio in Palestinian banks exceeds 17% and that the anti-money laundering and counter-terrorist financing framework aligns with international standards. Sahnar concluded by asserting that Palestinian demands are not for exceptional treatment but for clear, stable banking relations based on mutual commitments and adherence to international best practices, which would protect the Palestinian banking system and ensure its continued operation, thereby creating conditions for developing the national economy.