The World Bank warned Wednesday of a deepening fiscal crisis in the Palestinian territories, and appealed to donors to act urgently to prop up the Western-backed Palestinian Authority.
The bank said the authority's finances had been hurt by reduced donor funding, higher than expected spending on pensions and loans, and a revenue shortfall sparked by an economic slowdown, primarily in the Hamas-run Gaza Strip.
In a new report, the bank concluded that sustainable Palestinian economic growth required strong private sector investment. But it warned that such development was badly hampered by Israel’s heavy restrictions on Palestinian access to 60 percent of the West Bank. Much of the West Bank's farmland and land reserves are in areas under full Israeli control.
"Donors do need to act urgently in the face of a serious fiscal crisis facing the PA in the short term," said the World Bank’s country director for the West Bank and Gaza, Mariam Sherman. "But even with this financial support, sustainable economic growth cannot be achieved without a removal of the barriers preventing private sector development."
State Department spokeswoman Victoria Nuland, speaking to reporters in Washington, said the U.S. had seen the report and would urge donors to help.
"I would expect that in our bilateral interactions with some of the traditional donor countries, we will be encouraging them to give as generously as they can because the situation is very, very difficult," she said.
Donors, including the U.S. and some Arab states, have not met their funding pledges to the Palestinian Authority, which relies on the money to pay salaries to 150,000 civil servants who gobble up half of the government's nearly $4 billion budget. Even if donors meet their pledges, however, the authority will still be $400 million short of what it needs to close its budget gap, the World Bank said.
Economists say the cash crisis is the worst in the Palestinian Authority's 18-year history and threatens to set off a chain reaction of business failures, layoffs and economic downturn. Some warn that the Palestinian Authority, key to negotiating and implementing any future peace deal with Israel, will not survive without a major infusion of cash.
A report released Wednesday by the International Monetary Fund echoed the bank's findings, citing a slowdown in growth and rise in unemployment in both Gaza and the West Bank. The report said growth declined to 5 percent in 2011 and the first quarter of 2012 from 9% in previous years, while unemployment rose to 19% in the first half of 2012, from 16% in the same period last year.
In a separate report, the Israeli government claimed the Palestinian crisis was caused by a donor shortfall and overspending. It said the Palestinians owed $160 million to the Israel Electric Corporation.
Israel said the economic slowdown in the West Bank posed a major challenge to Palestinian stability, and said it has taken a number of steps to try to help the Palestinians. It said Israel had expanded by 40% the number of Palestinians allowed to work in Israel since early 2011, sent advanced tax transfers to the Palestinians to facilitate the payment of salaries to civil servants, taken steps to ease movement and facilitate trade in the West Bank, and approved dozens of development projects in the sections of the West Bank under Israeli control.
The Israeli report was prepared for the international donor nations that support the Palestinian Authority.