Arab League in cash-crisis talks with Palestinians

Tel Aviv // Top Arab League officials held talks yesterday with Palestinian leaders during a rare visit to the Israeli-occupied West Bank in a bid to alleviate the biggest financial crisis faced by the Palestinian Authority and devise ways to reignite the peace process.

Nabil Elaraby, the Arab League's chief, who was accompanied by Mohamed Kamel Amr, the Egyptian foreign minister, said in the West Bank city of Ramallah that "Palestine was in need of material and political support".

Nevertheless, Mr Elaraby indicated that there was little possibility that funds from Arab countries would reach the Palestinians any time soon. "Arab countries agreed at their Baghdad summit [in March] for an Arab safety net of US$100 million (Dh367.3m) each month, but unfortunately none of this has been achieved yet," he said.

The visit marks an attempt to reduce tensions between the Palestinian Authority (PA) and Arab states over shortfalls in pledged funds critical in alleviating its deepest financial woes since its creation in the 1993 Israeli-Palestinian Oslo Accords. The biggest Arab donors to the PA in recent years have been the UAE, Saudi Arabia and Kuwait.

Such shortfalls have dealt a financial body blow to the Palestinians because they have been compounded by Israel's suspension early this month of monthly transfers of tax revenues that it collects on behalf of the PA.

The withdrawal of the tax funds was an Israeli punitive measure against the Palestinians after the latter won a status upgrade at the United Nations last month to "non-member state" from "entity", a move Israel and its United States ally had fiercely opposed.

Palestinian officials said yesterday that the Arab League's visit in Ramallah also aimed to show support for the Palestinians' UN victory as well as discuss efforts to reignite the deadlocked peace process with Israel.

Hanan Ashrawi, a former negotiator and top official of the Palestine Liberation Organisation's executive committee, told The National: "We need to push for an international engagement to end the occupation. If we hadn't been under occupation, we wouldn't be in need of any donor aid because we would have control over our own resources."

Ms Ashrawi said the Palestinian leadership hoped the Arab League would devise ways of delivering the pledged funds.

According to Ms Ashrawi, the Palestinians are facing "a very serious and unprecedented economic crisis". Indeed, the Palestinian Authority - the biggest single employer in the Israeli-occupied West Bank - has so far been unable to pay more than half of the salaries of the its 150,000-strong workforce for November, Ms Ashrawi said.

Both the International Monetary Fund (IMF) and the World Bank have warned that falling donor aid - especially from Arab countries - may significantly hurt already slowing Palestinian economic growth and prompt the PA to postpone paying wages to civil servants.

The IMF, in a report in September, said that the West Bank's economic growth, adjusted for prices increases, dropped to 5 per cent last year from 7 per cent in 2010 partly because of a shortfall in Arab aid.

The fund also forecast that the PA would have a budget deficit this year of $1.3bn, with donor assistance expected to cover only $900m of it.

The outlook for Palestinian finances has been further clouded by Israel's announcement in mid-December that it would withhold until March the about $100m in tax revenues that it transfers every month to the PA.

Israel collects those duties - which account for about 70 per cent of total Palestinian tax income - in accordance with the terms of interim peace deals with the Palestinians, whose leadership uses the funds mainly to pay public sector salaries.

The transfers were already withheld this month, after Israel said the revenues would be used to pay off the Palestinians' debt to Israel's electricity monopoly. Israel has employed such punitive measures against the Palestinians in the past during periods of heightened tensions between the two sides, including when Unesco, the UN's cultural body, last year granted the Palestinians full membership despite Israeli and US opposition.

The PA, which is trying to cut its reliance on the tax funds and on donor aid, has faced a wave of protests in recent months against tax hikes and its delays in paying salaries to government employees.