Palestine's economy: a shekel economy run through Israeli customs

Why Palestine uses another state's currency

The Protocol on Economic Relations of 1994, known as the Paris Protocol and part of the Oslo agreements, does not allow the Palestinians to introduce a currency of their own. The Israeli new shekel is the main money in both territories and is used for most transactions, retail above all. In the West Bank the Jordanian dinar is also held, mainly for savings and for purchases of durable goods, and the US dollar is used for savings, for foreign purchases and in most of the transactions the Palestine Monetary Authority oversees. The record lists all three as currencies in use.

The Palestine Monetary Authority works as a central bank without a currency, so it cannot run an independent monetary policy. The World Bank's update of May 2026 describes what the arrangement means in practice: payments with Israel, the main trading partner, and with the rest of the world pass through the Bank of Israel and private Israeli banks, and limits on sending cash to Israel have left West Bank banks holding excess physical shekels while usable digital balances run short. In Gaza, where physical cash ran out during the war, payments moved to e-wallets and to iBuraq, the Monetary Authority's instant payment system launched across the territories in July 2024.

How the economy grew under occupation

The economy of the territories has been tied to Israel's since 1967. GDP per head rose by 7% a year from 1968 to 1980 and slowed in the 1980s. Between 1970 and 1991, by the Economy of Palestine article's figures, life expectancy rose from 56 to 66 years, infant mortality fell from 95 to 42 per 1,000 births, and the share of households with electricity rose from 30% to 85% and with safe water from 15% to 90%. Britannica records that only transport infrastructure improved much after 1967, mostly for military reasons, while investment capital stayed scarce in both territories.

Closures after 2000 shrank the economy again. West Bank output fell in 2000, 2001 and 2002 and grew modestly in 2003 and 2004, which the World Bank attributed to less violence, fewer curfews and more predictable closures. Britannica describes a pattern in which, in quieter times, as much as a tenth of Gaza's population crossed daily to work in Israel and closures put them out of work, and a smuggling trade grew through tunnels to Egypt carrying food, fuel, medicine, electronics and weapons. By 2022, 81.5% of Gaza's residents lived below the poverty line, by the Economy of Palestine article's count.

Restrictions on land in Area C carry their own cost. The West Bank article cites a World Bank estimate that the near ban on Palestinian quarry permits there costs at least US$241 million a year, and in September 2012 European activists estimated that the economy had lost access to 40% of the West Bank, 82% of its groundwater and more than two thirds of its grazing land.

Trade runs mostly one way. In 2011 trade between Israel and the Palestinian areas reached $4.3 billion: Israeli exports to the Palestinian Authority's areas came to $3.5 billion and Palestinian exports to Israel to $816 million.

How revenue passes through Israel

Clearance revenues are mostly VAT and import duties. Under the Paris Protocol the Government of Israel collects them on goods bound for the Palestinian territories and transfers them to the Palestinian Authority every month, after deducting a 3% administrative fee. In 2005 the Authority collected about $34 million a month itself, while Israel collected about $75 million a month on its behalf, kept about $15 million for Palestinian water and power bills and passed on about $60 million. In 2012 the Israeli-collected funds made up about two thirds of the Authority's self-generated revenue.

The transfers have been withheld at several points. Israel stopped them after Hamas formed a government in 2006, when they paid the wages of 160,000 civil servants. In 2019 it deducted US$138 million to offset what it estimated the Authority paid to the families of prisoners and of Palestinians killed by Israeli forces, a fund Israel says rewards terrorism. The World Bank's May 2026 update records clearance revenues suspended completely since May 2025.

The result, in the World Bank's figures for 2025, was a deficit of 7.7% of GDP after grants and Israeli deductions. Donors provided about US$940 million, an above-trend amount covering close to 90% of the deficit before grants, but the effective financing gap widened to about US$1.3 billion. The Authority borrowed from domestic banks, ran up arrears and paid partial salaries; in January 2026 every public employee received a flat NIS 2,000, three months late. Its public debt stood at an estimated US$4.8 billion at the end of 2025, and the banks' total exposure to the public sector at about US$5.3 billion, roughly 42% of their lending. The banks kept working through the war: in 2025 their total credit grew by 6% and deposits by 16%.

What jobs in Israel are worth

Wages across the line set the level of demand at home. In the fourth quarter of 2025 a Palestinian working in Israel earned an average of NIS 256.9 a day, against NIS 135.6 in the West Bank, and the World Bank notes that these workers account for a substantial share of spending in the West Bank economy. The number of Palestinians working in Israel and the settlements stood at about 177,400 in the third quarter of 2023, fell to about 24,000 after October 2023 and recovered to about 51,800 by the fourth quarter of 2025, much of the recovery among workers without permits.

Unemployment follows the same line. The Palestinian Central Bureau of Statistics recorded West Bank unemployment at 13.1% in 2022, against 45.3% in Gaza. In the West Bank it rose to a peak the World Bank puts at 35% at the end of 2023 and stood at 27.5% in the fourth quarter of 2025; the Bureau's annual figure for 2025 is 28.7%. Gaza's unemployment reached 78% in 2025, against 22% before October 2023, and only 9.3% of working-age people there had a job.

What the land and the workshops produce

Agriculture and stone are the oldest trades. The Economy of Palestine article counts around 183,000 hectares under cultivation, about half of it olives. Britannica describes the West Bank hills used for sheep, cereals, olives and fruit and the irrigated Jordan valley farmed for fruit and vegetables, and in Gaza, before the war, citrus raised on irrigated land and exported to Europe under arrangement with Israel. The Council for European Palestinian Relations puts agriculture's formal share of employment at 13.4%.

The limestone is quarried and cut into the pink, sand, gold and off-white blocks and tiles sold as Jerusalem stone. The West Bank has 650 stone production outlets, 138 of them in Beit Fajjar, and the Palestinian Ministry of National Economy estimated output at about 22 million square metres a year over 2014 to 2018. Handicrafts are made for sale and export too: embroidery, pottery, soap, glass, weaving and carving in olive wood and mother of pearl, with Bethlehem, Hebron and Nablus each known for its own.

Industry was never large. Britannica records that by the mid-1960s the West Bank had fewer than a dozen industrial establishments with more than 30 employees, and that foreign direct investment has stayed scarce because of the uncertainty of the occupation and Israeli limits on access to outside markets. A technology sector grew in the 2000s around Ramallah: it rose from 0.8% of GDP in 2008 to 5% in 2010, and a World Bank report counted 241 active start-ups in early 2017.

Tourism is a small share of output but a seasonal source of jobs. The World Bank's 2026 update names Bethlehem and Jericho as the towns where hotels, restaurants, transport and small shops depend on pilgrims and other visitors, and warns that regional conflict reduces that traffic. In 2010, 4.6 million people visited the territories, 2.2 million of them from abroad.

What the war did to output

The war that began in October 2023 broke the economy in two directions. The Palestine article cites the Bureau of Statistics for a 35% fall in GDP in the first quarter of 2024, and records that West Bank output shrank by more than 17% while Gaza's fell to an eighth of its 2022 level. UNCTAD estimated cumulative losses at $170 billion as of 2024. Prices moved apart: the Bureau's consumer price index rose 237.98% in Gaza in 2024 and 21.93% in 2025, while West Bank prices fell 0.11% in 2025.

Growth returned in 2025 on a narrow base. The World Bank estimates that Gaza's real GDP grew by about 30% in 2025, mostly a rebound from the collapse of 2024, and the West Bank's by about 3%, driven by the partial return of work in Israel. The Bureau's figure for the whole territory is 4.3% in 2025 over 2024. An estimated 92% of Gaza's establishments in industry, services, trade, tourism and hospitality were destroyed or damaged, and the World Bank, the UN and the EU put total recovery and reconstruction needs in Gaza at about US$71.5 billion. Poverty, by the World Bank's May 2026 account, affected more than half of the population, around 18% in the West Bank and nearly everyone in Gaza.

How much depends on aid

Donor money has been part of the economy since the Authority began. The World Bank opened its programme in the territories in November 1992. In 2008 the Authority received about $2 billion in development funds, 27% of GDP; by 2022 that was $350 million, 1.8% of GDP. The Economy of Palestine article puts all foreign aid in 2008 at $1.8 billion, about 30% of GDP, providing essential services for nearly half the population and paying the Authority's estimated 140,000 employees. Remittances from the diaspora and aid through UNRWA, Qatar, Turkey, the European Union and non-governmental organisations add to it.

Where the power and the fuel come from

The territories produce no oil or gas and buy most of their electricity from the Israel Electric Corporation. Consumption grew from 6 TWh in 2000 to 24 TWh in 2023, while generation at home grew from 0.03 TWh to 1.02 TWh. In the West Bank the share of electricity imported from Israel fell from 97% in 2019 to 88% in 2025 as solar capacity was added, and the World Bank reports a target of 1.6 GW of installed solar by 2030. In Gaza more than 90% of electricity assets were damaged in the war; at the time of the World Bank's May 2026 update a single 4 MW feeder still worked, supplying a desalination plant.

The one large domestic energy resource is offshore. The Gaza Marine gas field, about 32 km off the coast, holds an estimated 28 to 32 billion cubic metres of gas. The Economy of Palestine article dates its discovery by British Gas to 1999 and the Palestine article to 2000. Israel gave preliminary approval for its development with the Palestinian Authority and Egypt in 2023, and it remained undeveloped in 2024.