The Palestinian Authority is scaling back wages paid to its employees in response to a cash crunch deepened by a dispute with Israel over payments to families of jailed or killed terrorists, it said on Sunday.
Under the 1994 Paris Agreement between Israel and the Palestinians, duties on PA -bound imports are collected by Israel and then transferred to Ramallah. But Israel has recently announced that it would deduct about 5% of the tax revenues it collects on behalf of the PA to punish it for rewarding terrorism.
Israel said the sum represented the amount the PA pays to families of Palestinian terrorists jailed in Israel or killed while carrying out attacks or other security offenses.
Israeli and U.S. officials say the stipends fan Palestinian violence and are scaled so relatives of prisoners serving longer sentences receive larger payments.
After Israel's deduction announcement, Palestinian Authority President Mahmoud Abbas said the PA would not accept any of the tax revenues, which totaled 700 million shekels ($193 million) in January and account for about half of the authority's budget.
As a result, Palestinian Finance Minister Shukri Bishara said the PA would pay full salaries – which had been due on March 1 – only to its lowest-earning employees, or the 40% of its workforce that takes home 2,000 shekels ($550) or less a month.
Civil servants earning more than that, including cabinet ministers, will have their wages cut by half, he told a news conference.
However, Bishara said prisoners' families will continue to be paid their full allocations.
"No force on earth can alter that," he told a news conference.
Bishara said the PA will have to take bank loans of between $50 million to $60 million for the coming five to six months to weather the crisis.
An Israeli official, commenting on condition of anonymity, said the PA had a cash-flow problem as a result of U.S. cuts in aid to the Palestinians and the tax revenues dispute but that the situation would not spiral out of control.
"The nightmare scenario of the PA collapsing, or of PA security coordination with Israel ceasing, won't happen," the official said. "No one, including us and the United States, would allow that. If need be, we'll look for ways of preventing this."
The U.S. has cut all aid to the Palestinians, including $360 million it used to give to the United Nations Relief and Works Agency for Palestinians.
