World Bank warns of deepening Palestinian fiscal crisis

Wed Sep 19, 2012 5:17am EDT
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By Jihan Abdalla

RAMALLAH, West Bank (Reuters) - A fiscal crisis in the aid-dependent Palestinian economy will worsen unless foreign funding increases and Israel eases its restrictions in the occupied West Bank, the World Bank said on Wednesday.

"Donors do need to act urgently in the face of a serious fiscal crisis facing the PA (Palestinian Authority) in the short term," Mariam Sherman, the World Bank's country director for the West Bank and Gaza Strip, said in a statement.

In a report issued ahead of a conference on Palestinian aid in New York next week, the World Bank forecast a $1.5 billion deficit in the PA budget in 2012. It said only $1.14 billion in donor funding to cover the gap had been received.

The PA, which exercises limited self-rule in the West Bank, receives most of its aid from the United States, the European Union and Arab nations.

But over the past several years there has been a shortfall in aid coming from Arab states resulting in the PA being unable to pay salaries to its 153,000 civil servants on time, on several occasions this year.

A hike in taxes in early September caused by economic accords with Israel that peg Palestinian sales tax to high Israeli rates sparked demonstrations in West Bank cities and calls for the government to resign.

To appease the crowds and end protests, Prime Minister Salam Fayyad announced a rolling back of the tax increases.

The report said the presence of Israeli settlements, which control some 42 percent of West Bank territory, was stifling the potential for Palestinian economic growth.   Continued...

Palestinians hold flags and placards during a protest against the rising cost of living in the West Bank city of Ramallah September 11, 2012. REUTERS/Mohamad Torokman