Palestinians facing financial crisis, World Bank warns

World Bank urges donors to bail out West Bank's Palestinian Authority.

JERUSALEM // The World Bank yesterday warned of a deepening fiscal crisis in the Palestinian Territories and appealed to donors to act urgently to prop up the Palestinian Authority.

The bank said the finances of the Palestinian Authority, which governs the West Bank, have 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.

A report by the bank concluded that sustainable Palestinian economic growth would require strong private-sector investment.

But it warned that such development was hampered badly because Israel heavily restricts Palestinian access to 60 per cent of the West Bank.

Much of the West Bank's farmland and land reserves are located in that territory, which remains 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 Mariam Sherman, the World Bank's country director for the West Bank and Gaza.

"But even with this financial support, sustainable economic growth cannot be achieved without a removal of the barriers preventing private-sector development."

Donors, including the United States and Arab states, have not met their funding pledges to the Palestinian Authority, which relies on that money to pay salaries to 150,000 civil servants who gobble up half of the government's nearly US$4 billion (Dh14.68bn) budget. But even if they do, the pledges will still fall $400 million short of what the PA would need to close its budget gap, the World Bank said.

Economists said the cash crisis was the worst in the Palestinian Authority's 18-year existence and threatened to set off a chain reaction of business failures, layoffs and economic downturn.

Some warned that the Palestinian Authority would not survive without a major infusion of cash.