Region | Palestinian Territories
Palestine budget becoming untenable, says World Bank
The Palestinian Authority and the World Bank have held talks over the possibility of using money from a multidonor trust fund to ease a Palestinian budget cash crunch, a bank official said on Wednesday.
- Agencies
- Published: 00:00 February 2, 2006
Washington: The Palestinian Authority and the World Bank have held talks over the possibility of using money from a multidonor trust fund to ease a Palestinian budget cash crunch, a bank official said on Wednesday.
"There have been some discussions with the caretaker government in Ramallah, but there has been no formal request from the Palestinian Authority," the official said.
There are fears in the Palestinian Authority that a Hamas election victory last week could worsen the fiscal situation after the United States, along with the European Union, threatened to cut off funding unless Hamas renounced violence and recognised Israel.
Israel halted a $55 million tax payment due February 1 to the Palestinian Authority on Wednesday.
But the United States later on Wednesday pressed Israel to keep up the payments at least until Hamas was in the government.
Palestinian Economy Minister Mazen Sonnoqrot decried what he called Israel's "illegal decision", saying it amounted to "collective punishment" and estimated that as many as 1 million Palestinians would be affected. "This may cause chaos," he said.
In an updated report released on Wednesday, the World Bank said the Palestinian Authority's fiscal position had become increasingly unsustainable because of "uncontained" government spending, particularly due to sharp increases in salaries and hiring.
The World Bank has overseen a multidonor reform fund for the Palestinian Authority since 2004 and withheld a December payment of $60 million because a series of reforms agreed with the Palestinians had not been completed.
Still, the official said if all 12 donors that contribute to the reform fund agreed, the money could be disbursed to the Palestinian Authority without the necessary reforms.
A total of $310 million has been committed to the reform fund by 12 donors, with the largest contributor the European Union, of which $250 million has been disbursed in four tranches.
In 2005, the Palestinian Authority's budget deficit reached about $800 million, of which $340 million was financed by donors in the form of direct budget support.
Hamas has urged foreign donors to maintain aid but says it could still find other sources of funding in the Arab world.
It sent a delegation of Gaza-based officials and exiled leaders on a tour of Arab countries to urge them to keep the money flowing.
A senior Palestinian official said the Palestinian Authority was in negotiations with Saudi Arabia and Qatar for an emergency increase in aid so the authority can pay its employees.
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