Ramallah: The Palestinian National Authority faces a $400 million budget shortfall, even if current donor pledges are met, the World Bank warned in a report yesterday, calling new funding “critical.”

The 21-page report, prepared ahead of a meeting of international donors in New York on Monday, also accuses Israel of stifling Palestinian growth by impeding development in the West Bank’s Area C, which is under full Israeli control.

The report warns of “a time of deepening fiscal crisis for the Palestinian [National] Authority,” and comes after cost-of-living protests in the West Bank that forced prime minister Salam Fayyad to slash VAT and fuel prices.

The PNA’s fiscal situation will “likely worsen by the end of 2012,” the report says, noting a budgetary gap of approximately $400 million - “if donor pledges are met.”

“If no additional donor funding is identified,” it says, “the PNA may be forced to finance the gap through accumulating additional arrears to the pension system and cutting some of its basic spending such as wages, which could have severe social impacts.”

The report stresses that to “reverse the downward trend in economic growth,” the private Palestinian sector “needs access to land in Area C.”

The report maintained that Palestinian access to Zone C of the West Bank is a key to unlocking some of this private sector opportunity.

The world Bank’s report under the title of “Fiscal Crisis, Economic Prospects: The Imperative for Economic Cohesion in the Palestinian Territories” highlighted the untapped resources of the West Bank as a potential source of private sector growth, particularly urgent against the background of economic slowdown, reduced donor aid and few positive prospects in the broader political environment.

Noting the damaging economic effects of geographical fragmentation, the World Bank’s report underscored the significance of Zone C which is the only contiguous land in the west Bank, connecting 227 smaller separate and heavily residential areas. This 60 per cent of the West Bank which remains under full Israeli control, hold most of the agricultural lands, natural resources and land reserves of the West Bank. “Putting these resources to work can provide an economic foundation for growth in important sectors of the economy,” said the report. “Access to Zone C has the potential to play a central role in the development of businesses such as construction, telecommunications, agriculture and tourism.”

“Donors do need to act urgently in the face of a serous fiscal crisis facing the Palestinian National Authority (PNA),” said Mariam Sherman, World Bank Country Director for the West Bank and Gaza Strip. “But even with this financial support, sustainable economic growth can not be achieved without removal of the Israeli barriers preventing private sector development, particularly in Zone C,” she said.

“The most important message of this report is that the economic cohesion is not achievable when the areas in which people have to operate and go about their business are crisscrossed by impediments,” she said.

The World Bank’s report is meant to inform the Ad Hoc Liaison Committee (AHLC), a forum of donors to the PNA. The AHLC is due to meet in New York on September 23.