Palestinian banks are holding about 16 billion shekels in excess physical cash while facing shortages of usable digital shekel liquidity, creating growing risks for the financial system and cross-border trade, the World Bank has warned.
The figure, recorded at the end of December 2025, is part of a broader assessment of the Palestinian economy in the bank’s May 2026 Economic Update. The report says restrictions on transferring surplus cash to Israel have left banks with large stocks of banknotes that cannot easily be converted into the digital balances needed to settle international transactions.
The World Bank describes the problem as a liquidity mismatch rather than a shortage of shekels in circulation. Palestinian banks have physical cash in their vaults, but limited access to digital shekel balances held through correspondent banking relationships, which are essential for cross-border payments.
The report warns that any suspension or significant disruption of correspondent banking relationships could have immediate effects on the financial and wider economic sectors. Such disruption could affect the ability of Palestinian banks to finance imports and settle payments for essential goods, including fuel, water and medical supplies.
The pressure on the banking system is closely linked to the Palestinian Authority’s worsening fiscal position.
The World Bank estimates that the Authority’s public debt reached about $4.8 billion by the end of 2025, including $3.3 billion borrowed from domestic banks. When direct lending to the Authority is combined with loans to public employees, the banking sector’s total exposure to the public sector was estimated at about $5.3 billion, equivalent to roughly 42% of total bank credit.
The Authority’s arrears also increased sharply. By the end of 2025, it owed about $1.82 billion to the private sector and $2.85 billion to public employees, according to the report.
The fiscal outlook is expected to deteriorate further in 2026. The World Bank projects a fiscal deficit of more than $1.2 billion before accounting for aid and Israeli deductions from clearance revenues. After those deductions, the gap could reach about $1.6 billion. If clearance revenue transfers remain suspended, the financing gap could rise to as much as $3.8 billion.
The wider economy remains severely weakened despite headline growth in 2025. Real GDP in Gaza increased by about 30%, but the World Bank said this largely reflected the extremely low base created by the 83% contraction in 2024 rather than a genuine recovery. The West Bank economy grew by about 3%.
Gaza’s unemployment rate reached 78% in 2025, while more than 90% of working-age people did not have a job. In the West Bank, unemployment stood at 27.5% in the fourth quarter of 2025.
The damage to the private sector is also extensive. The World Bank estimates that 92% of economic establishments in Gaza across industry, services, trade, tourism and hospitality were either destroyed or partially damaged.
The latest joint assessment by the World Bank, United Nations and European Union puts Gaza’s recovery and reconstruction needs at about $71.5 billion. The World Bank says recovery will depend on predictable access to materials and financing, functioning banking relationships and the resumption of regular clearance-revenue transfers.
In July, World Bank Managing Director of Operations Anna Bjerde said the Palestinian Authority was facing a severe fiscal crisis and stressed that resolving the clearance-revenue issue and increasing the amount of cash that Palestinian banks can repatriate were essential to stabilisation.
The World Bank also called for stronger public financial management, improved revenue collection, greater spending efficiency and measures to support private businesses and job creation.