Billions of Net Lending... Will It Reflect on Employee Salaries?

Author

Dr. Said Sabri

The Ministry of Finance and Planning recently announced notable figures regarding net lending, one of the most draining files for the Palestinian public finances in recent years. The settlements included 170 local authorities, contributing to a reduction of their debts by approximately 360.7 million shekels, from 1.84 billion to 1.48 billion shekels, in addition to restructuring debts for 167 local authorities and an additional reduction of 46 million shekels. The ministry also reached settlements with seven major companies for electricity and water distribution, stating that it reduced net lending by about 1.6 billion shekels, along with arranging the collection of nearly 1.5 billion shekels through deferred checks and scheduled bank transfers over the years.

The figures are significant, and the trend is positive, but the most important economic question is not: how many billions were settled? But rather, how many shekels from these settlements have become actual liquidity available to the treasury? And the question that the employee will pose more directly is: can the reduction in net lending lead to an increase in salary percentages?

What is net lending anyway?

The term seems complex, but its idea is simpler than its name suggests. When some local authorities and distribution companies do not meet their obligations for electricity and water, the public treasury bears part of it, often through deductions from the revenues of the clearing mechanism, which the World Bank has historically documented in the electricity sector specifically. This means that the treasury bears the cost of a service that it was not the final consumer of, thus losing resources that it already needs for salaries, health, education, and social protection. Therefore, reforming this file does not necessarily require new funds from abroad; preventing the bleeding of shekels that would burden the treasury improves its financial situation, just as regular collection adds to its cash flows, even if the impact and timing differ between the two cases.

1.5 billion shekels... Did it enter the treasury?

Here, it is important to distinguish between three terms: settlement, scheduling, and cash collection. When the ministry says that its settlements with distribution companies reduced net lending by about 1.6 billion shekels, it does not necessarily mean that this amount has entered the treasury's account in cash. Similarly, the collection figure of 1.5 billion shekels requires careful reading, as payment is made through delayed checks and scheduled transfers over extended years, and the difference is substantial: a check due in a year is not liquidity from which the government can pay this month's salary. Therefore, the figure that the citizen and decision-maker need is not the nominal value of the settlements, but the actual cash flow resulting from them: how much has actually entered? And how much will enter monthly over the next year?

The biggest gain may be in the future, not in the past

However, the importance of what is happening may exceed the collection of old debts. If the Ministry of Finance succeeds in transforming the relationship with local authorities and electricity and water companies from a continuous accumulation of debt to regular payment of new obligations, it will not only recover an old debt but also close one source of future bleeding. The government improves its financial position either by increasing incoming flows or by reducing outgoing funds that can be avoided, and reforming net lending is capable of working on both sides together. This is reflected in the emergency budget for 2026, which announced a reduction in net lending obligations by more than half during the previous year, with settlements continuing throughout 2026, while the budget assumes, according to World Bank analysis, an additional decrease of about 22% as a result of these reforms.

Does this mean a higher salary for the employee?

Here, caution is needed when jumping from a large figure in a financial statement to a quick conclusion that the government is now able to raise salary rates. Reducing net lending improves the treasury's ability to pay, but it does not solve its crisis on its own. The Palestinian public finances face a much larger gap related to the continued withholding and deduction of clearance revenues, which is a source that cannot be compensated for by merely reforming net lending. The World Bank estimated the actual financing gap for the Palestinian Authority after the Israeli deductions to be about $1.3 billion in 2025, while the arrears of public sector salaries reached about $2.85 billion by the end of the year, and private sector arrears amounted to about $1.82 billion. Thus, net lending is an important part of the problem, but not all of it, and reducing it by one billion shekels does not automatically mean paying an additional billion in salaries. However, any sustainable decrease in it alleviates pressure on the treasury, and its impact on the government's ability to raise salaries becomes much greater if accompanied by an improvement in local revenues or the resumption of clearance flows.

From settlement on paper to liquidity in the market

The next phase requires an additional level of financial disclosure: publishing three figures periodically, not just the settlement figure: how much has actual net lending decreased? How much has entered the treasury in cash? And how much new debt has accumulated during the same period? It is theoretically possible for old debts to be settled while new debts accumulate on the other hand, making the accounting achievement greater than the actual improvement. However, if the old balance decreases, installments are regularized, and the accumulation of new debt stops together, we are facing a real structural reform, not just a rescheduling. The toughest test is not just collecting the old debt, but stopping the production of new debt; there is no value in rescheduling dues from previous years if the collection and transfer gap in current electricity and water bills continues.

Moreover, the impact of improving government liquidity does not end at the Ministry of Finance. If reducing net lending helps the government increase salaries or pay private sector dues, liquidity transfers to employees, suppliers, and contractors, and from them to traders and banks, making the reform of this file part of addressing the slowdown in the circulation of money in the Palestinian economy as a whole.

Summary: Turning achievement into sustainable cash flow

What the Net Lending and Taxation Unit has done deserves to be measured by its results over the coming years, not just by the size of the announced settlements. The challenge is not to sign an agreement with 170 local authorities or seven distribution companies, but to ensure that the financial relationship with them becomes regular so that we do not return to settling the same debts again; therefore, the most important indicator of success is the decrease in new net lending year after year, not the number of agreements.

As for the employee waiting for their salary, the answer is more realistic than a simple yes or no: reducing net lending will not solve the salary crisis alone, but it can stop part of the bleeding that competes with salaries for the limited liquidity in the treasury. The question that the Ministry of Finance must answer is no longer just: How many billion shekels have been settled? But: How much has net lending actually decreased each month? And how much cash has entered the treasury? And how much of this liquidity ultimately reaches the employee, the supplier, and the Palestinian economy?