The Palestinian Authority is in crisis, and its worst financial emergency in years is making headlines across the globe.

Largely sustained by donor funding, the Palestinian government has suffered major blows over the past year after the US, its biggest donor, gutted all of its aid projects and slashed funding for UNRWA and other agencies.

In February the PA was dealt with another potentially fatal blow. Israel refused to release the full amount of VAT tax — totally $190 million –it collects for the PA on imports bound for the occupied territory.

The Israelis had decided to enforce a $10 million per month deduction, meant to represent the amount paid by the PA in the form of pensions to the families of political prisoners and Palestinians killed by Israel. It’s a recurring issue that has been a thorn in the side of the PA for years.

But despite its dire need for the tax revenues, which make up more than 60% of the PA’s budget, the PA has refused to accept the “incomplete” revenues.

Its reasons were twofold: first, it was a symbolic gesture. The issue of prisoners and “martyrs” is one of the most sensitive in Palestinian society.

Thousands of Palestinians have been imprisoned by Israel, or have relatives who have been. Similarly, thousands have relatives who have been killed by Israel over the years. As a result, countless families rely on their pension from the PA to survive.

“Abbas is in a very difficult place. This tax issue is having a huge financial strain on PA,” Palestine Policy Fellow at Al-Shabaka, Dr. Yara Hawari, told Mondoweiss.

“But it’s very difficult for Abbas to back down on this, because prisoners are such an important part of public opinion in Palestine. It will be really difficult for him now to turn around and accept the deal,” Hawari added.

On the other hand, PA officials have expressed fears that if they capitulate to the Israel’s demands, it will pave the way for the Israeli government to use “financial blackmail” whenever they want something out of the PA in the future.

Haaretz reported that in one private meeting between Abbas and his officials, the President expressed concerns that if he were accept the post-deduction tax transfers “then Israel will exploit every opportunity to make more unilateral deductions. That’s why there will be no such situation and Israel will have to reverse its decision and return the money in full.”

And while Abbas’ government has employed a series of austerity measures over the past few months and managed to secure emergency funding from the Arab League, analysts like Hawari say those are only short-term solutions.

Widespread salary cuts to public servants, coupled with already high rates of poverty and unemployment, few prospects of free and democratic presidential elections, and the unveiling of the widely unpopular American “deal of the century” around the corner, will only exacerbate the already dire situation of Abbas and the PA.

“The collapse of the PA is definitely something we could see happening, especially if this financial and political situation worsens,” Hawari said.

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